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

Thanks, Michelle. Good morning, everyone, and welcome to L Brands Fourth Quarter Earnings Conference Call for the period ending Saturday, February 1, 2014. 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 fourth quarter earnings release and related financial information, including any non-GAAP or adjusted financial reconciliation tables, are available on our website, www.lb.com. Also available on our website is an investor presentation, which we will be referring to during this call. This call be 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'll be available to take your questions for as long as time permits. [Operator Instructions] All of the results discussed on this call are adjusted results and exclude the items from 2012 that are described in our press release. Also, as you know, 2012 was a 53-week year. All of the sales dollars, margin and operating income results discussed are on a 13- to 14-week basis for the quarter and 52- to 53-week basis for the year. Comparable store sales and direct sales dollar increases or decreases are on a comparable calendar period, 52 to 52 weeks for the year and 13 to 13 weeks for the quarter. Thanks. And now I'll turn it over to Stuart.

Thanks, Amie, and good morning, everyone. Our overall fourth quarter results were below our expectations. Through the first 3 quarters of the year, we were meeting our internal goal of growing operating income by 10%. The fourth quarter was certainly a setback with operating income dollars about flat year-over-year on a 13-week basis. While the environment was challenging for most in retail, as we assess our performance, we didn't execute as well as we should have. Therefore, we are intensifying our efforts on the fundamentals that we have been focused on for the last several years: our focus on the customer, improving speed and agility in the business and managing inventory and expenses with discipline. Earnings per share were $1.65 versus $1.76 last year or $1.68, excluding the extra week. To take you through the fourth quarter results, as detailed on Page 4 of the presentation. Net sales for the 13-week quarter were $3.818 billion versus $3.856 billion for the 14-week quarter last year, and comps increased 1% on top of 5% last year. The gross margin rate decreased 220 basis points to 43%, driven by a decrease in the merchandise margin rate and slight buying and occupancy expense deleverage. The SG&A rate decreased by 130 basis points. Operating income decreased $44.3 million to $863.5 million. The decrease is driven by the extra week last year. Excluding that week, operating income dollars were roughly flat in the quarter. Turning to our full year results on Page 6. Earnings per share were $3.05 versus $2.92 last year or $2.84, excluding the extra week. Excluding the extra week last year, EPS increased about 7% for the year. Net sales increased to $10.773 billion, and comps increased 2% on top of 6% last year. Excluding the extra week last year, total sales increased…

Thank you, Stuart, and good morning, everyone. Our fourth quarter results are detailed on Page 16 of your presentation materials. Victoria's Secret segment had mixed results in the fourth quarter. We had a solid start to holiday with high single-digit sales growth over last year during the Black Friday weekend and Cyber Monday. In addition, we succeeded in driving mid- to high single-digit growth throughout the quarter in our key categories of bras, panties and fragrance. However, we continued to have some misses in apparel. We also added incremental promotion as a result of the challenging environment. While we succeeded in driving traffic, our actions had a negative impact on our margin rate in both channels. On the other hand, we continued our focus on expense management and were, therefore, able to leverage our SG&A expenses. Segment operating income in this year's 13-week fourth quarter declined $42.5 million or 9% to last year's 14-week fourth quarter. The extra week last year accounted for over half of that decline. In the stores channel, fourth quarter comps increased 3% on top of a 3% increase last year, driven by growth across the assortment. Excluding the extra week last year, total sales increased by 5%. In addition, we had record in-store conversion for the 18th consecutive quarter. Our merchandise margin rate declined as we continue to see strong response to a marketing campaign and the added incremental promotional events. We also sold through a greater number of clearance items during semiannual sale this year, which helped drive our January comp store sales, but further eroded the quarter's margin rate. As a result, the gross margin rate was down significantly in the quarter, driven by the merchandise margin rate decline and deleverage in buying and occupancy expense. We leveraged SG&A as we focused on…

Thanks, Sharen, and good morning, everyone. Our Bath & Body Works results for the fourth quarter were below our expectations as we were unable to grow earnings versus our record performance last year. We will remain committed and focused on the fundamentals we do well and recognize that we must keep getting better to win. Sales performance was below our expectations throughout most of holiday. While we did see strength in seasonal forms and strong response to certain promotional events, the overall assortment and shop activity did not cut through enough with the customer to win in a highly promotional environment. Sales in our 3 key businesses, Signature Collection, home fragrance and soap and sanitizers, all performed at or above the total company level during the quarter. We were able to improve upon our already high conversion rates during the quarter, but it was unable to offset, fully offset challenging traffic levels. We did have a successful semiannual sale following the holiday season, and we're pleased with our decision to extend the sale through the Martin Luther King, Jr. holiday weekend. Total sales for the 13-week quarter were $1.2 billion, down 4% or $44 million to the 14-week quarter last year. Comps decreased 1% on top of a 7% increase last year. Excluding the additional week last year, total sales would have been about flat to last year. For the quarter, our operating income was $377 million, down $21 million or 5% from last year. The decrease was principally the result of the additional week last year. Operating income, as a percentage of sales, was 31% in the quarter and was down 60 basis points to last year. Gross margin rate in the quarter was down to last year driven by increased promotional activity. SG&A expenses leveraged versus last year.…

Thanks, Nick, and good morning, everyone. As in previous calls, I shall give you a brief overview of progress in our international businesses. As we all know, our opportunity for international growth is significant, and we feel good about the strategic choices we made to be steady and purposeful, to pursue a test-and-learn philosophy that reflects the DNA of our company. We made good progress in the fourth quarter. And as detailed on Page 14 of your presentation, we opened 160 international locations in 2013 to end the year with 863 international stores. As you will see when you receive the segment information after this call, revenue and profit from our Victoria's Secret and Bath & Body Works stores outside of North America grew substantially in 2013. Taking each business in turn. At Victoria's Secret International, we continue to be pleased with the performance of our full assortment stores. We now have 34 stores in Canada and we'll open another 7 stores this year. Going forward, Canada will be included with the Victoria's Secret segment. The Victoria's Secret Canada business has grown rapidly and is now about the same size as La Senza in Canada. In the U.K., we continue to be very pleased with our London flagship store on Bond Street and have recently acquired a long lease on the adjacent property to allow us to expand the selling area later this year. The 4 mall locations, 3 of which we opened in 2013, all continue to perform well. And we will open another 6 stores in the U.K. this year, continuing to build out our footprint. PINK is and will be represented in all of our locations in the U.K. In the Middle East, we now have 4 VS Full Assortment stores open under our partnership with Alshaya.…

Thanks, Martin. That concludes our prepared remarks. And at this time, we'd be happy to take your questions. [Operator Instructions] Thanks, and now I'll turn the call back to Michelle.

[Operator Instructions] Your first question comes from Brian Tunick from JPMorgan.

Two quick ones for Sharen, if I could. Sharen, I think this is the second holiday in a row that there was a lot of zigging and zagging out there. So what are some of the key takeaways that you and Les had to better position the brand at holiday for next year, if this is really the new world out there, just given how much profitability Victoria's Secret has in the fourth quarter and holiday? And the second question is it looks like the innerwear market growth, the reported numbers were flattish in 2013. So wondering about your position as an innovator to drive newness against several strong years of the category's growth. Just love your thoughts on that.

Great, Brian. Thank you. Let me take holiday first. There is a lot of learns. I think, on the opinion maker days for Victoria's Secret, whether it's Black Friday through Cyber Monday and the week before Christmas, we really kind of won. What we have found, and this is just truly a customer mind shift [ph], is those 2 weeks prior to Christmas they're big-volume weeks. But that's going to require a total rethink. And as we have hindsighted what our strengths were and our opportunities were for next holiday, we're applying that as we think about, not only the holiday season, but throughout the entire fall season. I do not think that the customer mindset is going to change. I do not believe that holiday is what holiday used to be. It's interesting, we saw a lot of shift into self-purchasing versus gifting. And I think that we just have to put that in our playbook as we approach next fall and holiday. In terms of the innovation piece, I think that, that is something that I'm proud to say that we continue to excel at. If I look at our innovation pipeline, sitting here and looking at 2014, there are some very new things coming our way. We just launched one of the -- an original T-shirt bra, and you would think, "hmm, T-shirt bra, isn't that out there?" We just launched that this week. Very successful, so far, for the launch. And as I look out through the entire fall and holiday season, we see many opportunities within that bra innovation. And as you know, as we approach innovation, we always approach it as what are we solving for the customer? So it's not just something that is a frill, but it's something that will mean something to her and that we can gain credibility with her and get her loyalty to come back to us. So I'm excited about what we see.

Thanks, Sharen. Thanks, Brian.

Your next question comes from Simon (sic) [Simeon] Siegel from Nomura Securities.

So maybe just for Nick. Can you talk about the longer-term margin objectives, maybe your AUR expectations, given your commentary around the environment? And I guess, just in a mall filled with all these storewide discounts, how do you view your promotional messaging?

So I think when we think about AUR and ticket, I think many of you noticed we've taken some ticket increases last year. And in some cases, we've been able to push that all the way through, and in some cases, we might be at the edge of how far we can go. So in my perspective, at this juncture is that we want to be really, really balanced between where can we push margin and how do we drive growth and I don't think that's a simple blanket statement across each of the different segments. I think it's one for us to play with as we read and react to the business. As it relates to your question in terms of the highly promotional marketplace, I think we had a lot of really good learnings as we went through fourth quarter and it becomes incredibly difficult to compete with, in many cases, entire store, 50% off. And that's not what we are aspiring to do with the brand. So I think we were able to test and play with different ideas on different days that yielded us really good traffic and healthy margin rates that we should be able to implement for next year. And then I would say the real work that needs to be done is in the first quarter of this year as we start thinking about planning those and what do they mean so that we can go into fourth quarter next year. As Sharen said, I agree, I don't think the customer's mindset's going to change. But that we control is our ability to play differently in there while still trying to keep -- while still trying to protect the brand equity.

Thanks, Simeon.

Your next question comes from Ike Boruchow from Sterne Agee.

Stuart, I just wanted to ask you about the inventory guidance that you laid out. It looks like inventories per foot are up about 9% right now and I think that you said that you expect them up mid-singles at the end of Q1 and then flat by Q2. Just curious, some of the puts and takes around what it takes to get there in terms of comp and how much margin you're willing to give up to kind of clear the decks by the end of Q2.

Sure. Thanks, Ike. The sales assumptions that run along with the inventory projection that we have are not aggressive sales assumptions. So they're consistent with the guidance that we've provided with respect to earnings. What's driving it is, as you know, a meaningful part of the increase year-on-year was investment in core lingerie at Victoria's and sport bras at Victoria's and some investment related to the international business as well. We have detailed projections, as you would expect, and I am confident that we'll be at mid-single digit by the end of Q1 and should be about flat by the end of Q2. We will have a little bit of an increase beyond sales growth in February and March. But again, mid-single by end of Q1 and flattish by the end of spring, and again, based on a conservative sales assumption. In terms of margin impact related to that, the quality of the inventory is very good. So there's a lot of things, obviously, that affect a margin rate in the business. But based on the nature of the inventory, not expecting a lot of margin pressure related to that inventory.

Thanks, Ike.

Your next question comes from Jennifer Davis from Buckingham Research.

Two quick ones. I guess, we'll see Canadian sales later when you give us your, I guess, your new reporting segments. But I was wondering if you could maybe give us a little color around the franchise revenues and then any comments maybe on the margins there. And then, Stuart or Sharen, I guess, I was wondering if you could provide us with a little more color around Victoria's Secret margins in 2013 kind of excluding the impact of the 53rd week. How much of the margin pressure did you see from square footage expansion and how much from increased promotional activity? And then should we think about 2014 in a similar manner? And then I'll throw one more in -- longer term, how do you guys feel about Victoria's Secret's ability to increase margins to the 20%-ish range?

Okay. Jennifer, we may have lost some of those questions in there. I'll take the first one about franchise revenues. I mean, we'll put this out obviously later today. But especially, what that will look like for fiscal year '13 is total revenues in excess of about $200 million and an operating margin rate that, as we've said in the past, is accretive to our total company operating margin, so above that 16% margin. Stuart, I don't know if you caught all of her questions in the second part. But...

I can speak to the Victoria's Secret, Jennifer, in terms of the 2013 margins for Victoria's Secret. It was primarily -- really 3 things. One is that we did have some miss in PINK in terms of our assortments early on in the season. And by cleaning those out and getting the new assortments in was a margin hit for us. I do believe that we, of course, corrected those assortments as we go into the spring season. The second piece of it was the promotional environment that we saw. Although we did have some big key items that we had engineered, it wasn't enough to basically drive the traffic and get the sales that we needed. And the third piece is that as we continue to do GWPs in our marketing initiatives, it continues to exceed our expectation. The next question that you asked, do we see a road map to getting Victoria's Secret to 20%? If I looked at it from a total segment perspective, including the Direct channel, we do. I think it will probably take us a couple of years to get there. We have a big initiative in terms of margin architecture and how we are looking at the business, both from a top line sales growth, the product categories they're in, editing out some peripheral categories that are not margin accretive for us. So I think that we're well positioned as we go forward to be able to continue to see growth on the top line and reach our ultimate goal of 20% operating income total segment.

Thanks, Jennifer.

Your next question comes from John Morris from BMO Capital Markets.

Two questions. First, for Stuart. SG&A down 7%, really good cost control there. Maybe talk about any of the components that helped you got there. Where were you able to really achieve that? And then as you look ahead to next year, with the guidance that you have, give us the puts and takes on the plan into 2014, essentially flattish. Would you say that there are any particular cost savings we should be looking for there? And where, in particular, are the investments? And then just quickly from Sharen, maybe if she can talk about the VSX product and how that's performing and what the plans are in the coming year?

Thanks, John. With respect to the SG&A result for 2013, so the leverage of 110 basis points, the company took some actions at the beginning of 2013 to reduce discretionary spending. We talked about those things at the beginning of the year, broad-based effort, third-party expenses and some internal costs. Through the year, we had a focus on managing expenses in a very controlled way, and I think across the businesses, did that well. And then the other driver that I would mention is that there is a meaningful component of SG&A related to performance based or incentive compensation, and as we didn't meet our company goals this year, those costs were down year-on-year. It's not the primary driver, but it was a contributor to the SG&A leverage that we realized in 2013. As we think about 2014, our mind-set will continue to be to grow expenses slower than sales. There is slight leverage in our beginning-of-year view of 2014. And collectively, we're working hard again to manage expenses growing slower than sales with a focus on -- particularly as it relates to noncustomer-facing expenses, as you would expect us to do, John. So that's some more color on expenses.

And Sharen?

Yes, we made the decision that we felt like that we had a great assortment in our sport bra category. So we said, let's go forward and roll sport bras to all stores, of which we did in October. We've been very pleased with the performance of the sport bras. As we continue to go forward, we have rolled the full assortment of sport out to more stores. Where we continue to roll out the full assortment, it can penetrate a store anywhere from 10% to 15%. So our focus was, okay, we're best at bras. Let's go dominate that category. We see great repurchase in that sport bra category. We've seen new customers in that sport bra category into Victoria's Secret. So we're feeling very optimistic about that as we go forward.

And further extensions there, Sharen, opportunity?

Yes, there are. It's about -- as we continue to work on expanding our real estate and our square footage, where we're constrained is at -- is within square footage.

Thanks, John.

Your next question comes from Kimberly Greenberger from Morgan Stanley.

Stuart, you had been talking post-holiday about a refocus on feeding the supply chain here in 2014. I'm wondering if either you or Sharen or Nick could offer some examples of some of the things you're been working on this year. And then a question specifically for Sharen. In the apparel category, can you just reflect back on 2013 and how your go-forward strategy is being informed by the performance, both either in licensed apparel and other apparel? And what's the kind of ultimate goal for that category going forward?

Kim, I will start with that speeding the -- in the supply base. We've done a lot of work and when I think about that we can order and receive panties in 7 to 15 days, so we've done a lot of the low-hanging fruit, as I would call it, from a speed perspective. Now as we think about all the way up into raw materials and component pieces and how we're thinking about that, and really the mind-set for us is to think about that if the factory was in our parking lot and how would we react to that. So we're doing a lot of work. And in fact, we are going -- quick trip to the Far East soon to be able to continue to work through that. So it's a continuation of an initiative for us as we go forward. So lot of exciting things, which would take longer than this call to go through all the things that we're working on. But if you have to think about it, from when we get an idea all the way to what's delivered in the store and says I do or I take it. When I think about the apparel business, let me kind of break it down. Our PINK business, which is about 45% is the lounge business. It is a strong, healthy business and well recognized. We had a bump in the road as we went into fall season, just missed a trend. I believe that we're back on track and we're seeing good results as we go into the spring season. When I think about the apparel business and the Direct business, our focus is going to continue in the Direct business to focus on the shared categories and continue to diminish the emphasis on that apparel category and actually probably thinking about and exiting some of that woven category as we go forward.

Kimberly, so a couple of things looking forward. The first one is we'll probably be pushing for further reduction in lead time on our candle business just because of the strength of our home business, which has been growing at a pretty healthy clip. I think the second thing is, as I look back at last year and as we mentioned in the opening comments, our seasonal business was extremely good. So we'll continue to really utilize the Beauty part to make sure that we're maximizing that part of our business, which turned out to be stronger and better than we anticipated as we went into fourth quarter. So that will be really important. And then just overall, I think maximizing it as we did last year that allowed us to finish, we missed our expectations in the fourth quarter, but we were able to finish the year with fundamentally flat inventory. So we'll continue to use that model as a critical component to winning as we go through 2014.

Thanks, Nick.

The next question comes from Roxanne Meyer from UBS.

My question is on merchandise margins. I'm wondering, Stuart, if you can tell us what your assumption is for the full year embedded in your guidance for merchandise margins. And then how do you think about the long-term opportunity for margins, for the merchandise margins, specifically, and the progression? And how important is merchandise margin as a driver to get to your high teens or 20% margin goal?

So Roxanne, thanks. With respect to what's implicit in our guidance for 2014, for the whole company, we're expecting a slight improvement in the merchandise margin rate for the full year. The amount of buying and occupancy deleverage is a little bit greater than that, which is how we get to the slight deleverage on the gross profit or gross margin line. So slight improvement in merch margin for '14. As it relates to the longer-term view on merchandise margin rates, Sharen and Nick may want to comment on those. But for the company, getting to 20%, the primary driver, as I've talked about previously, is driving sales growth and leveraging expenses over time. There might be some opportunity, further opportunity in merchandise margin rates, but really the key driver is top line growth and expense leverage.

Thanks, Stuart.

Your next question comes from Anna Andreeva from Oppenheimer.

A couple of questions, if I may. On international expansion. I guess, it looks like compared to what you guys outlined at ICR, the VSBA openings in '14 are a little bit lower, I think, by 25 stores, give or take, and you're adding a few more full assortment international stores. So maybe talk about what's driving the change in thinking there, and what are some of the differences in returns that you guys are seeing between the 2 formats? And then, to Nick, on Bath & Body, has been choppy lately. And environment, obviously, is promotional. Maybe talk about how should we think about operating margin performance at this division? And what are some of the categories you see as areas of opportunity in '14?

Thanks, Anna. We'll start with Martin.

Sure. Thanks, Anna. No real change in our philosophy or thinking from when we last updated. I think within the international sector, we see 3 key engines for growth. The first is the Victoria's Secret full assortment stores where we'll open about 15 in the year ahead. Some of those are company-owned in the U.K., as you know. The majority of them are under our franchise partnership in the Middle East, about 15 stores there. The VSBA business is growing at about the rate that we predicted, 100-or-so stores within 2014, very good e-commerce there. And then the BBW franchise business at about 20 to 30 stores during the year ahead. So I think, on balance, that's about where we predicted it to be. There are always a few puts and takes based on availability of real estate at any given time. So I think you could expect that number, any of those numbers, to swing by plus or minus 10%.

Well, looking at operating margin, we were -- actually, we were up last year 30 bps. So in a pretty healthy place. And I think the outlook on that would be flat. And if anything, if there's any upside, the thing we would want to be doing would be in a position to reinvest that back into the brand, which is a conversation Stuart and I and Les have been having. In terms of thinking about opportunity as we go forward, I think, probably, the big opportunity that could impact that and should impact top line as well is just the natural trajectory of our home business, which has been pretty good. So as I mentioned earlier on, even as we went through a challenging holiday, all 3 of our core businesses either grew at or better than shop and then home was a key player in that. And even as we go into this year, that continues to perform. So I think, looking at the margin rate there and the growth there, how does that impact both top line and bottom line opportunity for us.

Great. Thanks, Nick. Thanks, Anna. [Operator Instructions]

The next question comes from Matt McClintock from Barclays.

Martin, I was wondering now that the stores in United Kingdom have been opened for a while, could you just share with us any lessons or surprises that you've seen in those specific stores regarding any specific or different merchandise categories? And then, specifically, as you look to expand that store, the flagship store, what opportunities are you looking to address with that expansion?

Sure. I'll take that. So the headline in the U.K. is we're pleased with the results. I would say, in terms of comparing the merchandise mix and the sales rates in those stores with our business in the North America, it's substantially similar. As we always say, what sells here, sells there; what sells there, sells here. So that's very good news in terms of simplicity of expanding the organization and the operation there. Specifically, on Bond Street, we have terrific sales densities in that store. The opportunity came to get some contiguous real estate, which allows us to develop a much better customer experience and hopefully add some additional categories where we're short on space, particularly in areas like Beauty, swim, sport and some of the other great categories within the VS.

Thank you, Martin. Thanks, Matt.

Your next question comes from Oliver Chen from Citigroup.

On a bigger picture perspective, you've been such pioneers on speed and test, read-and-react. On the omni-channel side and the Direct business, are there opportunities for reserve-in-store programs or greater universalization of inventory?

Oliver, this is Sharen. I'll take that. There's always opportunity. We were -- we've had a very long history of a Direct business. And I think, as you know, we opened up our give her what she wants with return in stores. There's -- when I just think about all the opportunities that we have and it's something that we have that we're focused on, how it is with a reserve and store pickup, whether it's the mobile opportunity, these are all big things and big nuggets that we're focused on as we go forward because we so believe that you've got to give the customer -- let her choose how she wants to shop. what tools she wants to and we want to make sure that we continue to provide her that with these.

Are there anything you'd prioritize in terms of nearer term driving the comp?

In omni-channel? I think that, right now, what -- there's a lot of things I'd prioritize in terms of comps. But from the omni channel perspective, one of the things that is surprising all of us is just the quick move to the mobile phone, not to the iPad, but actually to mobile phone. So much more transactions are being done. And that's one of the biggest things that we're seeing in the opportunity to utilize that across channels.

Thanks, Oliver.

Your next question comes from Jennifer Black from Jennifer Black & Associates.

My question is for Sharen. I wondered if you could talk about logo-ing at both Victoria's Secret and PINK. How much are you toning it down? And how do you envision use of logos a year from now? We do understand that there's an international customer who really wants the logos. So I'd love your thoughts overall.

Thanks, Jennifer. It's always a balance. I think that we are still seeing a different kind of logo and technique in PINK that's coming forward. As I think about Victoria's Secret, cleaning that up a bit, I think I do believe we're going into a trend where it's more simplistic than the heavily over logo-ed product and I think you'll see some changes from us within that as we go forward. The Victoria's Secret brand and the PINK brand are so highly emotional that there probably always will be a small package of that extreme logo product. But we'll just keep reading it and reacting to what the customer wants.

Thanks, Sharen. Thanks, Jennifer.

Your next question comes from Marni Shapiro from The Retail Tracker.

So Sharen, actually, I was actually going to speak on Victoria's Secret as well. I know you're planning down apparel at the Direct side. And you've talked about so many of the different areas within Victoria's Secret and PINK. And I guess, is the store feeling a little over-assorted. Is there an opportunity to edit the Victoria's Secret stores? I know, even as you're growing them, this seems counter-intuitive -- but to edit them to make them a little easier to shop. And when I think about PINK and the fact that you're trimming apparel at the Direct business, yet when I walk into PINK this spring, I felt like there's more apparel than I'm used to seeing. If you can just talk about those 2 topics?

Sure, Marni. Appreciate the question. I think there's always an opportunity to edit out the peripheral. And when we think about really being focused, focused, focused in what's our best at and that is something that we continue to challenge ourselves with and I think that we will continue to be editing out the peripheral. The difference between the PINK apparel and the Direct apparel, the Direct apparel is truly, truly street wear, it's shoes, it's denim. What PINK is in is truly the lounge that actually targets that 18-year-old collegiate customer. And that's the real focus of that apparel business. And that's something that's not going to go away for us. And that's something that we're going to continue to focus on. But at the same time we do that, our penetration is moving higher and higher to the bras and to the panties. So when we think about that intimate apparel business in PINK is that the dominance will be bras and panties and the apparel is the icing and the layer that goes back to that.

Thanks, Sharen. And thanks, Marni.

Your next question comes from Betty Chen from Mizuho Securities.

Just continuing on that train of thought regarding apparel for Victoria's Secret Direct. How quickly can we see the minimization of apparel online? And when do you feel like that's really going to be the big inflection point?

I think into fall 2014 into spring 2015.

Thanks, Sharen. Thanks, Betty.

Your next question comes from Laura Champine from Canaccord.

Could you talk about what your assumptions are looking at that low single-digit comp this year in terms of mall traffic and your own ticket overall?

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

Basically, what we're looking at is mall traffic being flat. I mean, it's interesting, over the last couple of weeks, we've been exceeding the mall traffic. But it's from our conservative perspective, we think mall traffic will be flat. In terms of our AURs, are up slightly, but not dramatically.

And Nick?

Yes, I can't imagine why we would be looking for anything other than flat traffic. And we've played with ticket a fair amount, so I really think us being focused on conversion right now to maximize that will be the key focus area for us.

Great, thanks. Let's do a couple more here.

Your next question comes from John Kernan from Cowen.

Just a quick question for Martin. It sounds like Victoria's Secret in the U.K. is ramping nicely. Have you thought at all about e-commerce in Europe and launching any country-specific websites?

Sure, absolutely. And of course, we do currently ship from our e-comm business to 200 countries around the world. So that is something we're actually engaged in. However, as we've said before, we believe the best way for the Victoria's Secret brand to come to life in a new market is with a built environment and the service proposition that goes around that. So yes, we thought about it. It's just not our highest priority right now.

Thanks, John. Two more.

Next question comes from Blair Pircon from Robert W. Baird.

Martin, could you talk a little bit more about some of the other regions, specifically reception for the various brands in the Middle East and other places around the world? And how you're feeling about entering China, leading with VSBA, and the opportunity there?

Sure. I think when we last updated, we've said our priority geographical focus is in 3 areas of the world. The first is Middle East and Turkey where we have a very substantial partnership with Alshaya Group. We'll be growing that business significantly in the year ahead across all of our formats. The second priority is the U.K., thinking about the opportunity that, that affords us into Continental Europe in the [indiscernible], so really building out our business in the U.K. The third is Southeast Asia where we're seeing great growth in VSBA and in the Bath & Body Works format, and La Senza continues to perform well there. And of course, that is the lead indicator for China, which will be an incredibly significant market for us in the future. We will open our first VSBA stores in Mainland China later this year. So excited about that.

Thank you. Thanks, Blair.

And your final question will come from Randy Konik from Jefferies.

I guess, a question for Stuart. How do you think about the plans for, I guess, La Senza, given that you're going to not start reporting pieces of the business? Does it really fit into the key natures of where you guys are trying to take the company long-term? And then how do you think about net debt-to-EBITDAR targets for the company?

Thanks. We'll go to Martin, actually, I think, for the La Senza question.

Yes, sure. So we absolute believe in the notion of owning the 3 best intimate apparel brands in the world, Victoria's Secret, PINK and La Senza, and having clear blue water between the positioning of each of those brands. And I think evidenced by La Senza continuing to trade well in centers in Canada and the Middle East where Victoria's Secret has entered in a dominant way gives us great optimism that we can position those brands differently and that La Senza can have a relevant place in our enterprise. Our focus is going to be on building better assortments in core categories, zeroing in on the young, sexy obvious positioning and improving our store experience overall.

Randy, on leverage, we're not formulaic about it. So we don't manage to a specific number. But with that said, leverage, as we would look at it on an adjusted basis in the mid-3s feels about right to us and that's where we've been over the last several years as we've updated regularly and periodically. So in the mid-3s feels about right. Obviously, that's a function of the cost of debt in relation to the cost of equity. Our maturity profile is good. But in the mid-3s feels about right.

That's great. Thanks, Randy. And thanks, everyone, for joining us today and for your interest in L Brands.

Thank you, everyone. This concludes today's conference call. You may now disconnect.