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 2014 Earnings Call. [Operator Instructions] I will now turn the call over to Ms. Amie Preston, Chief Investor Relation Officer for L Brands. Please go ahead.

Thank you, and good morning, everyone, and welcome to L Brands' fourth quarter earnings call for the period ending Saturday, January 31, 2015. 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 is being taped, and you can 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] Thanks, and now I'll the turn the call over to Stuart.

Thanks, Amie, and good morning, everyone. We delivered record results in the fourth quarter and full year, a result of solid execution within our business and a focus on the fundamentals. We are pleased that we are able to learn from our underperformance in last year's fourth quarter and build momentum throughout 2014. We had sales growth, merchandise margin rate improvement and sound inventory management across all of our businesses in the fourth quarter. Earnings per share increased 15% to $1.89 versus $1.65 last year. To take you through the fourth quarter results, as detailed on Page 4 of the presentation, net sales for the quarter increased 7% to $4.069 billion and comps increased 6%. The gross margin rate increased 210 basis points to 45.1%, driven by an increase in the merchandise margin rate. The SG&A rate increased by 120 basis points, driven primarily by increased incentive compensation and, to a lesser extent, an increase in store selling cost. Operating income dollars increased 11% to $957 million. The tax rate in the quarter of 35.8% provided $0.07 of upside to our initial guidance and an additional $0.06 versus last year. Turning to our full year results on Page 5. Earnings per share increased 15% to $3.50 per share versus $3.05 last year. Net sales increased 6% to $11.454 billion and comps increased 4% on top of 2% last year. The gross margin rate increased 90 basis points to 42%, primarily driven by an increase in the merchandise margin rate. The SG&A rate was flat year-over-year. Page 7 details our full year operating income results. Our full year operating income rate was 17.1%, up 90 basis points to last year. Operating income dollars increased $209.6 million or 12%, driven by growth in all 3 business segments. Turning to the balance sheet…

Thank you, Stuart, and good morning, everyone. 2014 was an important year for us as we delivered positive results while also making significant changes to our business. In 2014, we exited both the apparel and makeup businesses, which allowed us to focus more on our core and shared product offerings. We delivered strong growth in sales and profitability despite these headwinds. Now let's talk about our performance in Q4. The Victoria's Secret segment grew both sales and operating income. Total sales increased 5% to $2.4 billion and comp sales increased 4% on top of 2% last year, with operating income increasing $46 million or 10% and our operating income rate increasing 110 basis points. Merchandise margin dollars and rate for the segment increased, led by the growth in the stores channel. We also finished the quarter in good inventory position, down double digits per square foot to last year. Now let's turn to specific channel performance, starting with the stores. We are pleased with the fourth quarter as sales and operating income both increased to record results. Entering the quarter with leaner inventory levels allowed us to read and react with speed and agility. It positioned us to be able to get back into trends, while quickly reducing markdowns. In addition, we executed a thoughtful approach to our promotions. As a result, this approach and leaner inventory levels allowed us to drive significant improvement in our margin rate. SG&A deleveraged, driven by higher incentive compensation and store selling cost. Buy-in occupancy also deleveraged, driven by our continued investment in store real estate. Operating income in the quarter increased, a result of higher sales coupled with margin rate expansion. Now turning to the direct channel. Our fourth quarter results continue to reflect our strategy to exit non-core apparel categories. Fourth quarter…

Thanks, Sharen, and good morning, everyone. At Bath & Body Works, we were pleased with our record results during the quarter after a disappointing fourth quarter last year. We were able to drive significant growth in sales while improving margin rates and managing inventory levels down. Total sales for the quarter were $1.4 billion, up 9% or $122 million to last year. Comps increased 8%, and our direct channel sales grew at 25%. Sales were strong across of the quarter, and we were able to drive growth in each of our 3 key businesses: our Signature Collection product line, the soap and sanitizer business, and our home fragrance assortment. We were pleased with the customers' acceptance of our holiday assortment, the visual appeal of our stores and the in-store execution of our plans. We were looking to reestablish ourselves as the holiday destination by celebrating the moment better in our floor sets and in our activities. We believe that this approach helps drive a successful holiday period. The momentum from holiday continued with a strong semiannual sale performance and a positive response to our early spring collections. Promotional activity was relatively flat to last year, and we were able to execute a plan that balanced fewer and more impactful activities that generated a strong response from our customers. For the quarter, operating income was $449 million, up 13% versus last year. Our operating income rate improved by 110 basis points to 32%, driven by expense leverage and improvement in merchandise margin rates. We continue to see strong performance in our BBW Direct channel. Fourth quarter operating income grew significantly versus last year, and annual sales went over $300 million. For fiscal 2014, total sales grew by 7% versus last year and comps ended up 6%. Operating income was $737 million, up 14% versus last year. Our operating income rate improved by 120 basis points to 22%, driven by expense leverage and an improvement in merchandise margin rates. Looking ahead to the first quarter of 2015, we will continue to leverage our read-and-react capabilities and provide a world-class in-store experience to our customers. We're optimistic about the trend of our business and confident in our plans, but understand we need to keep getting better to win in the competitive retail environment. We will flow newness throughout the quarter beginning this month with our Love & Sunshine theme that features new and seasonal fragrances in our 3 key businesses. Our inventories are well positioned heading into the New Year and are flexible enough to react to customers' preferences. We remain focused on disciplined expense management, but we will continue to make appropriate investments to drive growth in the business. With that, I'll turn the discussion over to Martin.

Thanks, Nick, and good morning, everyone. As in previous calls, I should give you a brief overview of our progress in the 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 140 international locations in 2014 to end the year with 394 stores in the segment. For the fourth quarter, revenue increased 40% to $105.5 million and operating income increased 76% to $29.5 million. In 2014, revenue and profit from our Victoria's Secret and Bath & Body Works stores outside of North America grew substantially. Revenue increased by 51% to $335.9 million and operating income more than doubled to $78 million and 23.2% in revenue. At Victoria's Secret International, we're pleased with the performance of our full assortment stores. In the U.K., we continue to be very pleased with our London flagship store on Bond Street as well as our 9 mall stores. We'll open another 4 stores in the U.K. this year. In the Middle East, we now have 13 Victoria's Secret stores and 1 PINK store open under our partnership with Alshaya. We continue to be delighted with the results and will open another 8 to 10 stores this year. Staying with Victoria's Secret, our Victoria's Secret Beauty and Accessories business continues to progress well with 290 locations open at the end of the year, about 1/3 of which are in airports. We've opened 9 VSBA stores in China and are pleased with the results. Mexico is also looking promising with 14 local market VSBA stores now open. We'll open another 120 stores or so across the globe in 2015. Turning to Bath & Body Works. We now have 80 BBW stores under our franchise partnerships, and we continue to be very pleased with the performance of these stores with notable openings in Southeast Asia and Latin America in 2014. We expect to open another 50 or so BBW franchise stores in the year ahead. So in summary, a good year for international in 2014, and we remain focused on the fundamentals, great execution of our brands wherever we go.

Thanks, Martin. That concludes our prepared comments, and at this time, we'd be happy to take your questions. [Operator Instructions] Thanks, and I'll turn it back over to Michelle.

[Operator Instructions] Your first question comes from Tom Filandro from Susquehanna.

I was just really had a question about the forward guidance. Stuart, maybe can you tell us on the incentive comp, what have you built into the model for your forward guidance? In line incentive comp, up or down? And maybe can you quantify the impact on the guidance?

So on the guidance, what would -- what's reflected and what we shared externally would be a target or slightly below target incentive comp assumption. Obviously, based on the results that we achieved in 2014, our payouts were, given that they're performance based, were meaningfully above the par target or the base target. In terms of quantification, Tom, it's -- we want to be thoughtful about how we do that. But there is some upside, obviously, and it's not insignificant in the '15 guidance related to IC.

Thanks, Tom.

Your next question comes from Anne-Charlotte Windal from Bernstein.

Was wondering if you could give us an update on the speed-to-market initiatives for both Bath & Body Works and the VS in the coming years? So what's going to be the focus? What are the areas of opportunity? How much upside do you continue to see from that?

Thanks, Anne-Charlotte. We'll start with Sharen and then go to Nick.

Thank you, Anne. We've made -- I'm very pleased with the performance that we really have made in speed. And this year, it's interesting as we're really focused, even taking out more in terms of the front-end product development process, in terms of being able to identify things even later to get them into work later to get closer to the customer. We were fortunate that we bypassed all the -- on the West Coast strikes because we made decisions to air everything. We will continue to air everything in. So I think that we still have opportunities to get better and better in terms of our speed initiatives as we go forward. But the primary focus now is really on the front end.

Anne, it's Nick. We've made obviously significant progress and where we're really thinking the opportunity for the future will continue to be with the breadth of the assortment that we can get on to the speed model. Also looking at the home business and thinking about the growth that we see in home and how do we make sure that we're seeing that shift also into the speed aspects of that. And then, really, trying to do what we did last year, which was read the business, react to the best full-price selling area and make sure we're using the speed model to speed into the stuff that's obviously selling well and got the higher margin. So we'll continue to focus on that.

Great. Thanks, Nick, and thanks, Anne-Charlotte.

Your next question comes from Kimberly Greenberger from Morgan Stanley.

I just wanted to follow up on the progress on speed in the supply chain as well. Nick, maybe you could start by sharing with us the percentage of your current inventory or maybe 2014 inventory that was on a sort of 4- to 6-week lead time. And do you have annual targets for migrating a certain percentage of your inventory to those faster lead times? And if Sharen could give us any kind of similar data that you might have to share on your panty category or your bra category or any other data that we could help to -- that would help us understand where you are today and sort of the annual progress we could see.

Kimberly, it's really -- to me, the question is more about our breadth of the assortment and less about the inventory. Because, as you know, we keep our open-to-buys very, very open, which allows us to be as nimble as we can. So to me, it's the breadth of assortments that we can get into the speed model so that we've got a broader chance of reading and reacting to a broader selection of products that would then allow us to actually shift the inventory to match that. So in terms of percentages, I'm not going to go into the percentages, but the breadth continues to grow of things that we can get into the pipeline on a faster basis so that we can react to the business. And that was an important piece of why we had a good fourth quarter, that we had a slightly broader amount and we were able to chase into it.

I would say there's similar things, Kimberly, in terms of Victoria's Secret. It's interesting. Each category has different characteristics. We are very fast in panties and continue to get faster in panties. And basically, almost all of our panties today are on some kind of speed program. And those speed programs allow us to read the business on a Monday and be back in stock in the stores within 15 to 25 days. So we continue to hone in, in terms of making sure our toolboxes that we've put together in -- with our vendors are important. We continue to think about the bra business, which obviously has a little bit more complexity to it. That's probably an understatement. And we have worked very hard to -- both in the PINK and lingerie business to be able to read those businesses on a Monday and to get back into inventory -- back into the stores within 4 weeks. We continue to think about different ways in how we can even improve our opportunities across all categories. And as I said earlier, the opportunity as well is how do we -- can even shorten our development time. Now we've already taken probably 4 months out of our development time and believe there's probably another 2 months to continue to work in as we go into 2015. We've done that work and so we're in the piloting stage of that work for this year. Very excited about the opportunities. And it really takes a strong partnership with our vendor and supply base, and we are very fortunate to have a lot of strength in our supply base and with our partners.

Thanks a lot, Kimberly.

Your next question comes from Oliver Chen from Cowen and Company.

You guys had a stellar holiday. As you think about this and you kind of post-game it, as you always do, where would you articulate some of the bigger surprises were in terms of potential opportunities, even acknowledging it was excellent across the banner? And then, Stuart, just a modeling question. So the comp guidance for low to mid- and full year at low. Is that expected to sequentially kind of moderate towards the back half? I know you're generally very conservative in your guidance, your inventory planning.

Okay. Why don't we start with Sharen? So surprises for fourth quarter and talk kind of...

In a holiday, there wasn't -- there weren't really a lot of surprises in terms of how we were thinking about approaching the business. I mean, I think that the holiday season is really just one of promotion out there, starting from the weekend before Thanksgiving all the way through Christmas. We decided that we just did not want to continue to play in that, that we feel that more emotion is better than promotion. I think even the consumer are kind of seeing a fatigue in promotion. The opportunity to win even earlier in the holiday season, whether it's the first part of November, continues to be an opportunity for us. We had a stellar record. Thanks, Black Friday. So I can't tell you that there was really any surprises for us. We were fortunate to pull back on to promotions. And then, therefore, I think the real opportunity as we continue to think about holiday 2015, again, is how do we get more emotion, better products, better fashion, more covetable items, and I think that's what the customer is yearning for versus just this continued slogging it out into the promotional world.

Great. Nick, any thoughts?

Yes, the big sort of learning or surprise for us, less of a surprise, more of a learning, was we expected and it happened, which was the peaks and troughs associated with November, her reacting, her behavior in November and reacting to sort of the dynamic of the marketplace and the necessity to purchase in that period. And then, obviously, the trough of early December and the great build in late December. And then the second thing is I think we're really seeing how savvy she is as it relates to leveraging the promotional activity that's out there and figuring out how to really take advantage of it. And we were able to do the same as Victoria's Secret, which was not fall into the overtly promotional activity on an omnipresent basis, but really leverage it at the right times and really leverage it with the traffic that came or didn't come at the right time of the year.

Stuart, thoughts on the comp guidance?

Yes, Oliver, as you mentioned in your question, we plan our business conservatively. And we do that so that we manage inventories well and expenses well. And then we work like heck, obviously, to do better than that. In terms of sequentially or variation across the quarters, as we outlined in the guidance remarks, the comp assumption in the Q1 guidance is low to mid and for the whole year is low. And Q1 is reflecting what we've seen so far in February. So thank you.

Thanks, Oliver.

Your next question comes from Lindsay Drucker Mann from Goldman Sachs.

I wanted to ask a question about your Swim business, and obviously, a very big sort of splashy approach with the swim special on tonight. And you've been blowing up my Instagram feed with a lot of swimwear promos. So I wanted to ask about how big is your Swim business today. Why the sort of step change in a much louder promo strategy around Swim? Are you also making changes to the assortment in the product? And how do you think about the ultimate opportunity for this category?

Thank you, Lindsay. We've been in the Swim business, especially on the direct channel for quite some time. We have about $0.5 billion worth of Swim business, and we continue -- and it's kind of something that we do kind of under the covers. And we continue to expand our Swim business in the stores -- on the store channel. We're now in about 700 stores. So I believe that this is an opportunity for us to come out strong, to own the spring season. We know that when we're in the Swim business, it drives new customers to Victoria's Secret, which drives new bra customers, and that's what we're after.

Thanks, Sharen, and thanks, Lindsay.

Your next question comes from Matt McClintock from Barclays.

Good focus on international Bath & Body Works. Meaningful acceleration in the store rollout there. Just can you talk to the infrastructure to handle that rollout? And what's the impetus for the acceleration there?

Yes, we'll go to Martin?

Yes, Bath & Body Works was the first business that we opened internationally. We've been growing it steadily. We started in the Middle East, moved into Southeast Asia, Latin America. And I would say everywhere that we've opened it, it works. It's the simplest of all of our businesses to scale internationally. So I think it's just a logical progression that we start to speed up the rate of expansion a little bit. I would say, as I always do in international, the rate determining step is the availability of the right real estate. We could go faster with the wrong real estate, and we don't think it's the right thing to do. So we always bracket the guidance, to be honest, so that we are not pinning ourselves to a single number. It really depends on the availability of that quality real estate.

Great. Thanks, Matt.

Your next question comes from Jeff Stein from Northcoast Research.

Two quickies, real fast here. One is, we've had 2 large retailers. Walmart and TJX announced wage increases, and I'm wondering, are you guys raising hourly wages at Bath & Body and Victoria's Secret? And then one for Martin. If you could just kind of address the Chinese opportunity in terms of how many stores potentially you think that market might accommodate.

Great. Okay, Jeff. Sharen is going to take the wage rate question.

So thank you, Jeff. First of all, we are not a minimum wage rate company, and our focus is on our customers and making their experience in our stores the best it can be. And really, at a high level, our goal would be able to have more high-quality, experienced and productive sales associates, which then we believe will increase sales and customer loyalty and reduce associate turnover.

Great. Thanks, Sharen. And Martin, in China?

Yes. So we're pleased with China. We opened 9 VSBA stores in January, which makes our entire retail business in China just 4 weeks old. So we're at the beginning of the beginning. I would tell you that we are looking for real estate across all of our brands, and we will be growing our infrastructure. We're growing our talent base. We'll be growing our real estate base in the coming years. My crystal ball doesn't tell me how big the opportunity will be in the end. In the end, I'll just say that we're right at the beginning and there's more to come.

Great. Thanks, Jeff.

Your next question comes from Paul Lejuez from Wells Fargo.

Was this the quarter that you began accepting foreign currency on your website? And if it was, just wondering if you saw a pickup there in certain countries as a result, specifically, in the U.K., as you've had a bigger store presence there over the last year. Have you seen an increase in U.K. shoppers shopping your website?

We just turned that on, really, at the latter part of the fourth quarter. We've seen a little bit of pickup. It's really too early to really read in terms of how big and how much more it will mean to us. But it's something that we're still very excited about and see a lot of opportunity.

Any change in the philosophy of going international through e-comm versus stores?

It's something that we continue to talk about and that we are -- probably will come back to later in 2015 with our view in terms of how we might approach that.

Great. Thanks, Paul.

Your next question comes from Dana Telsey from Telsey Advisory.

On square footage growth, given the strong fourth quarter, I know you raised it to 4%. Any thoughts on could it be a little bit higher on what you're seeing with the side by side with White Barn and BBW, either U.S. or internationally? And then with the Swim television showing, could there be additional TV shows from Victoria's Secret, maybe in Sports down the line that could be next?

Thanks, Dana. We'll start with Stuart on square footage.

Dana, on the square footage growth for 2015, at this point, we are largely locked and loaded, if you will. So I think the estimate that we put out is about right for '15. Obviously, as we always do, we'll look at results and we'll adjust either up or down, more activity or less and more investment or less depending on results. But I would say the '15 numbers are largely baked at this point.

Thanks. Sharen?

We're very excited about the Swim show tonight, and I'm just going to hold off on telling you if we would come back with any more television after we see how we -- what our viewership is tonight and what the acceptance is. And so we're -- we will be waiting and seeing. There's always many opportunities for us, but I think it's how much exposure, what's the right balance. And we kind of want to see what happens tonight.

Great. Thanks, Dana.

Your next question comes from Howard Tubin from Guggenheim Securities.

Sharen, maybe can you give us any more detail on the VS Sport category, how that's doing and what the plans are for a rollout over the course of the year?

Yes. We're very excited and very pleased with our Sport business, especially in our bra category. That's where we've seen -- that's where we've been putting a lot of our emphasis and seeing tremendous growth there. We'll have a full assortment in about 189 stores. And we're very excited about this category. It's one of the fastest-growing categories in the direct channel as well, and this is something that is helping them to offset their apparel business. Our biggest challenge in terms of how fast we can grow our Sport business is just real estate. And as we continue to optimize our real state and as we move as we go forward, so we're kind of going slow to go fast. And as you see us expand our stores, you'll see the expansion in 150 stores we're expanding. This spring season, we'll be expanding our sport presentation. Opportunity for growth, very focused on the bra business and excited to see that -- how big we can make this category.

Great. Thanks, Howard.

Your next question comes from Simeon Siegel from Nomura Securities.

Nick, just given the ongoing improvements and the opportunities you've addressed, can you quantify longer-term BBW operating margin target? And then just, Stuart, what's the right way to think about the other op income line, just recognizing the margin contraction this year?

Simeon, I think the way we're looking at our business currently is that we've got pretty healthy margin rates, and we've made a significant amount of product upgrades, and the results of that has been we built customer loyalty and we're pretty happy with where we are. I think the opportunity for us is less about that and more about continue to drive top line and the opportunity we get to reinvest back into the product. Because where we've seen quality improvements, we've seen customership go with that or we've seen product acceptance go with that. And we know that, that builds loyalty. So I think the longer-term play is more about continue to drive top line and less about margin opportunity.

Great. Thanks, Nick. And Stuart, on other segment?

With respect to the other segment in terms of our view for 2015, we think it'll be pretty consistent in overall result with the result in 2014.

Great, thanks. Thanks, Simeon.

Your next question comes from Barbara Wyckoff from CLSA.

I'd like to talk about Victoria's Secret margins versus the store. What was the effect on operating margins of vacating the apparel and makeup categories? And could you kind of remind us qualitatively where the margins were in VSD 3 and 5 years ago versus today? And then, Nick, could you comment on margins in BBW versus the stores? And is there any chance you would ever bring that business in-house? I think you're still using a third-party provider for fulfillment.

Sure. It's Sharen. So the -- between Victoria's Secret Direct and the beauty business, for the fall season, it was about $80 million in operating income that we had to -- that we obviously offset and then grew on top of that. So that was kind of the magnitude of the operating income for that time frame. When I think about -- when you go back and you look at Victoria's Secret Direct 3 to 5 years ago, Direct has been, on an operating income basis, between 20% and 21%. So they obviously, this fall season, they dipped. But I believe that we have the opportunity. Now again, we're going to go up against $189 million in sales this year. I think we have the opportunity easily to get back to those numbers. And then I think the other thing is that the opportunity to really grow to go forward. So it'll be easier for us from a margin perspective and operating income, especially in the fall season, where we kind of -- where we took our markdowns. So I see opportunity. But 3 to 5 years ago, Direct was sitting between the 20% and 21% depending on the year.

Great, Nick?

So we're fortuitous -- fortuitously, we're in a good place from operating margin perspective because that channel operates at or above the stores. So there's no need to worry about moving stuff around. And then, as it relates to outsourcing, we're pretty comfortable with where we are currently, but we're always assessing and looking at different opportunities. And as the business grows and it continues to grow, who knows. But at this juncture, no, no plans for that.

Great. Thanks, Barbara.

Your next question comes from Randy Konik from Jefferies.

So I guess, a question for Stuart. Do you -- can you go over the puts and takes of the gross margin guidance and how we should be thinking about the different divisions? And then, with regards to the inventory turns over the last 5 years, done a great job of getting that one turn plus up. Do you think we have another opportunity to get another full turn out of the business in the next 5 years? How should we just think -- be thinking about inventory turn potential going forward?

So in terms of the components of the gross margin rate and as we're thinking about 2015, we think that there is a slight opportunity or a small opportunity in terms of improvement of the rate. As we think that through, by way of reminder, the foreign currency impact is a drag on the merchandise margin rate in 2015. But even with that as a headwind, if you will, we think there's slight opportunity in merchandise margin rate. And as you know, based on our investments in stores, the B&O dollar increase is beyond a low single-digit percentage increase. So a little bit of deleverage on B&O. In terms of further opportunity to improve turn, it's not going to be at the same level that we've accomplished over the last few years. We are in business to sell stuff, obviously, and we want to make sure that we're in stock at the right depth at the point of sale. We sell high-margin goods and being in stock is really important to our customers. With that said, we're always looking to get a little bit better and push and understand tradeoffs and further leverage what we're doing with respect to reducing lead times and speed, absolutely. But again, in terms of magnitude of opportunity, there's some, but not at the same level that we've seen over the last 3, 4, 5 years.

Great, thanks, and thanks, Randy.

Your next question comes from Omar Saad from Evercore ISI.

Looking at -- through your slide deck, one of the things that jumped out of me the most was, especially on the U.S. side, the Victoria's Secret side, the difference between expected store count growth and the selling square foot growth. I think one is 2% and the other is 5%, obviously, implying significantly larger stores in the offing [ph]. Can you help us understand kind of the stores -- your strategies around store size and how you're thinking about that, especially since this seems to be coming at a time when you're also seeing your direct business kind of having been -- finally been cleaned up and really starting -- the core of the direct business really starting to grow very nicely? Just want to kind of understand in context how you're thinking about store size versus direct and if that also applies globally or across the other brands.

Thanks, Omar. We'll go to Sharen for that question.

Omar, today, our average store selling square footage has been about 6,000 square feet. And we believe that our average sellings could be, depending on the market, probably needs to be almost -- be double that. When you think about the opportunities in growth that we have in PINK and the productivity that we're doing in PINK, we think that there's huge upside in that category. That is where we've been investing a lot of our real estate growth. But at the same time, we're still under-spaced in terms of Victoria's Secret lingerie. And we probably quoted these numbers before that 80% of our stores don't have the full assortment of PINK and don't have the full assortment of Victoria's Secret lingerie. So these larger square footage stores gives us the opportunity, not only to do Victoria's Secret lingerie correctly, it gives us the opportunity to do PINK correctly. And then the 2 emerging categories, when you think about Sport and Swim. So we're at a great place today in the fact that we don't -- we have more proven ideas than we have real estate to support them. So this real estate and bigger store gives us that opportunity. As we have learned over the last 3 years with the bigger real estate, not only have we grown square footage, we've also grown productivity in these larger square foot stores. Now we're very cautious. We don't want to overbuild. We don't want to overbuild the square footage. And so therefore, it gives us excitement and opportunity to grow the categories. And just as I spoke a little bit about the Sport business earlier, we only really have real estate in 189 stores out of the 1,049 that we have to actually do Sport and to do Sport well. So I'm excited about this. It's the right strategy, and I honestly wish I could go faster.

Great. Thanks, Sharen. And Martin, do you want to comment on international?

Sure, yes. So outside of North America, as you would expect, our approach to real estate is substantially similar to that, that we see in the U.S. Of course, we size the stores to the size of the market opportunity. So what you see in Victoria's Secret International is larger stores than the U.S. average to begin with because we've gone to best malls in the world with our stores. So that's what's really driving that phenomena, I think.

Great. Thanks, Omar.

Your next question comes from Janet Kloppenburg from JJK Research.

Stuart, I got on a little late, so I apologize if someone else have asked this question. But excluding FX, would you be looking for operating margins to move higher this year? And maybe you could quantify if the opportunity is as significant as it was in fiscal '14. And also, I was wondering about -- Sharen talked about airfreighting in product. I was wondering if there will be an opportunity to reduce airfreight as the year goes along and perhaps influence gross margin there. And lastly, Martin, I was wondering if you were considering or have plans to enter Western Europe in the near-term future with company-owned stores.

Janet, okay. That was 3 questions, but...

Okay, maybe just the operating margin question for Stuart and then we can get back to that later.

That's okay. I'm teasing. We'll start with Stuart.

So in terms of the operating margin rate or the operating income rate in the business, we've talked consistently about pursuing a high teens and, ultimately, a 20% operating income rate. And there's nothing about 2014 that doesn't tell us that we have that opportunity, meaning, '14's improvement certainly validates what we think the potential of this business is. You commented on the guidance, would get to roughly flat or just slight improvement in the operating income rate. It is impacted by the FX, $0.10 to $0.12. We can all do that math in terms of what that would mean in terms of operating income rate. So it's a pressure. But we're very focused on driving top line growth and further improvement in the operating income rate, and again, very much believe that there's a lot more potential there for our business.

Great. Sharen?

I am so passionate to air everything. So there is not going to be a reduction of airfreight. And I'll tell you why I'm passionate about it, because I think that it more than pays for itself in terms of being closer to the customer. You have less markdowns, higher churn rate, better accuracy. So it's not -- I'm sitting on the other side of that if you believe that from a "cost is irrelevant" piece on the airfreight. I think it pays us back in so many other ways and so many other lines on the P&L.

Martin?

Yes. So Janet, Continental Europe is a lower priority for us. Having said that, we have 2 pilots starting this year, one in Southern Europe, one in Northern Europe, both for VSBA. On the question about ownership, I'm really happy with our capital-light partnership model and no plans to change that.

Thanks, Janet.

Your next question comes from Ike Boruchow from Sterne Agee.

Not sure if this one's more for Martin or for Stuart. But when we look at the profitability of the international segment, it continues to move higher. Could you kind of walk us through the puts and takes over the next 12 to 36 months there? Is that be -- should that margin rate continue to move higher? If so, is that more a function of your U.K. business beginning to scale and make some profit dollars? Or is that your franchise business continuing to ramp and the royalty flowing through? Any help there would be great.

Yes, I'll take that. At the beginning of the international journey, we said that you should expect our rate to be at or above the overall rate of our company, and so that proves to be at 23%. It's complex to model. As you rightly pointed out, we have a mix of ownership and partnership. So I don't particularly like giving guidance on it. I don't expect substantial movement in either direction on this particular number, to be honest with you. But we'll learn. The international business is small. We're still developing. We're still growing the foundation. So I would say, watch this space and stay close.

Thanks, Ike.

So your next question comes from Roxanne Meyer from UBS.

My question is on the BBW store growth strategy. You've mentioned you're growing at 3% square footage. You've got 90 remodels coming this year. How are you thinking about the opportunity for long-term growth and optimizing productivity at BBW? And what is your strategy as it relates to remodels? What have you seen so far?

Roxanne, well, on a macro level, the total store growth is less significant when you're talking about a base of over 1,600 stores. Some of that store growth that's projected forward is coming from Canada. I think the more interesting thing is the remodel where we're starting to -- we're beginning the process of really going into the chain and saying there are places that we need to upgrade and start reinvesting in there, which is a great thing because it's about building the brand, building the brand equity and making sure we do what we always say we want to do, which is really be focused on the customer experience. And so this year is the year that we started to do that and that's why you're seeing those numbers increase.

Great. Thanks, Roxanne.

So our final question will come from Susan Anderson from FBR Capital.

I was wondering, on the e-commerce side of things, it seems like BBW is a bit lighter on penetration versus VS. Is there any plans to accelerate that? And then not sure if I missed this, I jumped on a little bit late, but did you guys give any color on AUCs for this year, given the decline in commodity cost?

Okay. So we'll start with Nick.

Susan, the -- first of all, the BBW business is younger than Victoria's Secret Direct business. But we have seen very, very healthy growth in that channel over the last few years, well, frankly, since its inception. And we continue to expect that. The really important aspect of that channel for us is, obviously, the ability for us to tell the brand story, to market the brand, to make sure that we're in a 2-way dialogue with the customer and making sure she sees what's most important from us. So that's really where we're thinking of that.

Great. And Stuart, on product cost?

We don't -- there's -- we don't have a view within the business that there's a major plus or minus as it might relate to fuel or other input cost. As you know, we've got a broad assortment base. There's certainly some, a small amount of upside related to fuel, but I wouldn't describe it as material.

Great. Thanks, Susan. So that concludes our call this morning. Thanks for joining us, and thanks for your interest in L Brands.

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