Good morning. My name is Heidi, and I will be your conference operator today. At this time, I would like to welcome everyone to the L Brands Fourth Quarter 2016 Earnings Conference Call. I will now turn the call over to Ms. Amie Preston. Chief Investor Relations Officer for L Brands. Please go ahead.

Thanks, Heidi. Good morning, everyone, and welcome to L Brands' fourth quarter earnings conference call for the period ending Saturday, January 28, 2017. As you know, we released detailed commentary last night, which is available on our website, www.lb.com. Since our opening comments are brief, we plan to end the call around 9:45. 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, additional commentary and the earnings presentation are all available on the website. Stuart Burgdoerfer, EVP and CFO; Nick Coe, CEO of Bath & Body Works; and Martin Waters, President of International, who is joining us from China this morning, are all joining us today. And now I'll turn the call over to Stuart.

Thanks, Amie, and good morning, everyone. We're not satisfied with our overall fourth quarter results. Performance was mixed, PINK and home fragrance at Bath & Body Works delivered solid results. But overall, mall traffic decelerated in December. And at Victoria's Secret, merchandise margin rates were negatively impacted by actions taken in order to end the year with clean inventory. Looking forward to 2017, we have confidence in the long-term growth opportunities for our business. Our brands are strong and lead their categories, and we have a talented and aligned leadership team. We're continuing to invest in initiatives that will drive significant growth, including White Barn remodels at Bath & Body Works and investment in China. As you know, in early 2016, we also made strategic changes at Victoria's Secret to streamline the business, focus on our core categories and accelerate growth. While these investments and strategic actions will continue to put pressure on results in 2017, we're confident that they are the -- that they are providing the platform for accelerated future growth. Beyond the short-term impacts to this year, we remain committed to our goals of growing annual operating income by 10% and an operating income rate in the high-teens. We will continue to focus on the things that we can control and manage inventory, expenses and capital spending with financial discipline. With that, I'll turn the discussion over to Nick.

Thanks, Stuart. So just a few comments. While results were better than last year, they were below our expectations, and it really was our speed or our business model really translated as agility that allowed us to win during a challenging Q4 environment. Looking back at Q4, there really continued to be a shift in traffic patterns, and that put pressure on us to think differently about how to play or how to maneuver our way through that really critical time frame of the year. However, that shift in traffic provided an opportunity in January, allowing us to grow sale and margin. And the quality of our inventory mix was good and demand was strong. Clearly, we're not immune to the ups and downs or the fluctuations in customer behavior, but our business model becomes invaluable. To ensure we can react appropriately missing our expectations on top line growth, but finishing with inventory down to last year and not having to overly promote the brand is a good place to be and frankly, a positive outcome for the season. All in all, it was a challenging quarter, but we managed to grow top line and operating income with terrific insights into next year that we've already started to take action on. We remain committed to staying close to the customer and leveraging our business model to remain as nimble as we possibly can as the market appears to continue to remain pretty dynamic. Just a thought on February. February was very much a month of ups and downs and we were surprised by traffic trend, especially in the middle of the month during the holiday shift, so about a 12-day period. Outside of those 2 weeks, trend in the business really wasn't dissimilar to what took place in November and December. Some category shifts, nothing startling, and pretty much in line with what we've really been witnessing in the past. So I think it's difficult to predict a true run rate until we can get through March and April, where we obviously have more holiday shifts. And our online business has been good, so with the same assortment, that leads us back to what has been going on from a traffic perspective that we see in the mall. With that, I'll turn it over to Martin.

Thanks, Nick. Good morning, everybody. As Amie said, I'm joining the call from Shanghai, where we just opened our first full assortment Victoria's Secret store in China today. Really a terrific store, about 25,000 square feet, 4-floor store, a real global flagship for the brand. And I'm really delighted with our execution and, frankly, blown away by the customer reaction we've seen today. I was in Chengdu earlier this week. That store opens tomorrow. And before that, I was in Beijing, visiting the site of our flagship store for the capital, and that opens in December. I continue to believe that China will be an enormous market for us. And I'm very happy that we made the decision to invest now for our long-term success. And with that, I'll turn it back over to Amie.

Thanks, Martin. And at this time, we are ready to take your questions. [Operator Instructions]. Thanks. And I'll turn it back over to Heidi.

[Operator Instructions] Your first question comes from Paul Trussell from Deutsche Bank.

Just wanted to really get a little bit more context around how you're approaching this year from an earnings guidance standpoint, and perhaps give us a little bit more clarity on expectations around the extent of the deleverage in occupancy versus the merchandise margin opportunity, especially as we go throughout the year.

So Paul, it's Stuart. Thanks for your question and good morning. In terms of how we're approaching earnings guidance this year versus what I'll call our historic approach or mindset, it's consistent. And that is that internally, we seek to plan and run the business conservatively. And then, when we have indication of opportunity in sales trends, we read and react and chase and pursue upside opportunity. And that mindset, as it relates to how we run the business on a near-term basis, is reflected in our earnings guidance. Meaning, we try to plan and forecast the business relatively conservatively. As it relates to the buying and occupancy rate for the year, there is going to be some deleverage in the P&L driven by sales pressure on a top line basis and also ongoing investment, both at Victoria's Secret and Bath & Body Works in remodeling stores. 2016, B&O benefited from the reduction of catalog marketing activity, which we have historically classified or declassified in B&O. So in terms of '17, consistent overall mindset and some deleverage in the P&L in B&O driven by sales and ongoing investment in our stores. Thanks.

Your next question comes from Michael Binetti from UBS.

Just a quick modeling question. If you could, could you please clarify the comment you made on the holiday shift in the middle of February? And I think you were trying to help us normalize that for some of the noise in the month and how you're comparing it to trends that you saw before February. I just want to make sure I was clear on that.

Sure. Michael, I think the way we're looking at it is the timing shift between when Valentine's Day fell last year and when it fell this year, the timing shift between President's Day last year and President's Day this year. And that in that 12-day window, we saw both mall and then ourselves pretty heavy traffic declines. Outside of that -- which is where we saw decline in our business. Outside of that, the periods pre and post have been more stable and more consistent with the run rate that we had in November and December.

And the other thing that I would add is that our quarter guidance, and it was in the commentary that was circulated last night, our quarter guidance assumes an improvement in the sales trend from February for the balance of the month -- or the balance of the quarter, excuse me, balance of the quarter.

Okay. Could I just ask you, as we look at how the year could flow for you, maybe just a little more about what you're seeing in the business for the second half? Because obviously, we're going to have 2 very different things going on first half or second half. But could you talk about some of the puts and takes that land you at what I think you're pointing to as maybe positive low single-digit comp trajectory in the second half? If I'm reading correctly that that's where you feel like the go-forward categories will be trending coming out of the first half.

Yes, from a business standpoint, I mean, the assumption that's reflected in our modeling and our forecasting is that we'll continue to make meaningful improvements in our merchandise assortments and how we market and sell those in our business, particularly at Victoria's Secret. PINK has been a steady business and running well and very strong growth. We assume that, that will continue. Easy to say, hard to do. But PINK is led by Denise Landman and has a great team. But as it relates to lingerie and beauty, as you know, we've got 2 new leaders in that business, Jan Singer and Greg Unis. And they're doing fundamental, important work to improve merchandise assortment, the product itself. And we have a belief that the benefit of those efforts will particularly benefit the back half of the year. Also, it'll be a function of what we're lapping, and it'll be a function of the negative impact in the first half of the year related to the category exits at Victoria's. The pressure from China moderates in the back half of the year is another aspect of what's going on. So acceleration in business at Victoria's lingerie and beauty. The effect of the swim and non-go-forward apparel exit concentrated in the first half and then some timing as it relates to the drag from China year-on-year putting pressure on the first half of the year and not so much in the second half.

Your next question is from Dana Telsey from Telsey Advisory Group.

How do you -- how are you thinking about real estate in the store base given the mall traffic environment and what's happening in the malls? How do you see it evolving go forward?

So to answer it, obviously, an important question. We believe that our brands best come to life in a store environment. We have strong, terrific, compelling, highly profitable online businesses, as you know, about $2 billion in sales related to our online business and a big global opportunity. But kind of reflecting our belief in the store business, Martin Waters is on this call from China because of -- in part, because of the importance of the physical store and the experience that, that represents. With that said, as provided in the circulated commentary last night, we will continue to monitor our real estate investment, our square footage, our productivity, our profitability, our CapEx on a regular basis. And as compared to the view that we had and shared with you in -- during the October Analyst Day, we pulled back our CapEx related to real estate about $125 million between then and our current view. And we'll continue to look at it through the year depending upon the performance in our business. And that reduction was in dollars, about equally split between Victoria's and Bath & Body Works. So our real estate is in terrific shape, as you know. 99-plus percent of our store is cash flow positive. Our sales per foot, more than $800 a foot. A lot of the investment in square footage expansion that we're making relates to the PINK business that has sales productivity of $1,300, $1,400 a foot. But again, all that said, we'll continue to monitor the results and adjust accordingly. And last, last, we're participating well in both channels. So we have a very strong store-based business and we have a very strong online business in North America and one that will emerge globally.

From Kimberly Greenberger from Morgan Stanley.

I'm wondering if you can sort of step back and reflect on all the strategic changes made at Victoria's Secret last year and share with us what are the results that you've seen that are in line with what you were hoping to see. And relative to your expectations when you started on this journey, what are the pieces that have come through in a somewhat disappointing way?

Sure. Thanks, Kimberly. So in terms of an overall assessment of the changes that Victoria's implemented in 2016, the first I would say is that we attracted through the changes that we made, a younger customer, which we believe is very important to our business. We've always felt that way. Les has felt that way about our businesses from the very beginning. Having that younger customer is very important, and we believe we made substantial progress on that. Secondly, Kimberly, I would say that we drove a lot of unit growth in the bra business. And as you're aware, as most are aware, there are 2 emerging categories or newer categories in the bra business that we pursued very, very aggressively. And we drove a lot of growth in those categories and those being bralettes and sport bras. And so that was a goal. We went after it in a big way, and we drove substantial growth in those businesses. The next thing that comes to my mind in an assessment is that we brought 2 new -- we reorganized the business. As you're aware, it was run as 1 business. We broke it into 3 parts: lingerie, PINK and beauty. And through that, combined the store and online channels under each of those 3 leaders. And how I would assess that is Denise Landman's been in the business in a very long time, has a very strong track record and through those changes, I think it only -- that organizational change only gives us more confidence in the ongoing growth opportunity for PINK. And that manifests itself in terms of space allocation, marketing resources, et cetera, selling efforts online and in stores. The ability to pursue growth in PINK is enhanced through that organizational change. We're very optimistic about…

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

Following up, Stuart, on those comments about promotions and the shift towards trial -- driving trial versus just driving traffic to the store. Last year, when you made a pretty dramatic change in your approach to promos. As you think about this year, could we see a bit of a reversion to some of the old methods that have been successful in driving traffic? Maybe not a full return to the mailers, but are you kind of reevaluating the sort of aggressive reduction in promos as maybe an opportunity to do a little bit better in traffic? And also, as you think about how aggressive the markdowns were in bras, specifically towards the end of last year and into holiday, do you feel like maybe there's just a little bit of fatigue right now from the consumer that's weighing on the business because they came off such a very promotional holiday that she needs a bit of a reset, and that's part of what's kind of weighing on the business in the short term?

Sure. So short answer to your first question, which is about continuing to evaluate the nature of promotion, the short answer to that is absolutely yes. And one shouldn't conclude from that. And you recognized it in how you phrased the question. We're not going to go right back to where we were promotionally in terms of just very significant quantities of very simple, not brand-building coupons, as we would refer to them. But we are reevaluating how to have relevant promotion delivered in a brand-building way to her in traditional mail and electronically and communicated in a number of ways as you would appreciate. And those evaluations continue and they're very important to the business. And I'm optimistic that we'll make good ground on that this year in '17. As it relates to the promotional fatigue, Lindsay, I think there could be some aspect of what you're describing. But what I really think about, in answer to your question, is what is most important to Victoria's Secret or Bath & Body or businesses like these is having fresh, new, compelling product. And if we deliver well on that or I should say, when we deliver well on that, all these other aspects diminish in importance pretty significantly. And that is absolutely what Denise and Greg and Jan are focused on, which is regular flow of compelling new merchandise into the business. Again, is there some aspect of what you're describing? It may be true. Probably, it's a reasonable theory. But I'm highly confident that what really solves all of that is compelling newness in our assortments.

Your next question is from Paul Lejuez from Citi.

Just curious if anything changed in how you promoted either in businesses in February. And also have you seen periods in the past where things fell off to this magnitude one quarter to the next? And if so, what was the reason behind it? How did that get fixed?

Thanks. Paul, we'll start with Nick.

Hi, Paul, it's Nick. We didn't really make any major changes to the promotional activity in the month of February. So obviously, we came off of a very strong January and came into February. And as I said, the real challenge was in the middle of the month. What was interesting to us during the month was where we tried to fight traffic and pulse different ideas, we found pretty solid receptivity from the customer. So whether she was in the mall or not, whether she was anticipating to shop or not during that change in traffic, our ability to drive traffic if we needed to with different pulses was actually pretty positive, which says underneath all of that, do we have product acceptance? Do we still have a compelling brand proposition? And so that's kind of one aspect of it. The other aspect of it was we were also -- we're very much a short-cycle business and the importance of us testing, especially products -- less so price, but especially products, to give us clues into where should we be going has also been very valuable during the month. That gives us a pretty solid point of view in terms of how do we want to evolve the brand, where do we want to take the brand to, especially in light of the fact that we are very short-cycle business. So that's really the main -- there was no major change to the promotional or marketing aspect of it outside of just trying to understand receptivity during those difficult traffic periods.

Paul, Nick alluded to it earlier in his remarks. For both Bath & Body and Victoria's Secret, the businesses continues to be very strong online. That's just a very important point to register. And we have seen in our businesses and as reported by third-party service, a substantial reduction in mall traffic in February for whatever reason. Is it tax refund? Is it -- who knows what it is. But it was a substantial fall off. And so fundamentally, that's what's going on. And what we're focused on as a management team is what we can control, which is about -- again, about product and managing the business with financial discipline. And we'll do that. But I think that we had a -- and then the last point, just to make sure we understand and we quantified it for you guys in the pre-circulated remarks, is another compounding factor in all this is the impact of the exits at Victoria's on their number and on the total company number, which in the first part of the year, as you know, is significant. So when you look at down to the headline level number, it gets your attention and it certainly gets ours. But again, it's mall traffic. It's the impact of the exits at Victoria's. And again, what gives us some level of confidence and comfort is the business continues to perform very well online.

Your next question is from Anna Andreeva from Oppenheimer.

I guess, a follow-up on February. So historically, do later tax refunds affect the BBW customer disproportionally? Or is this additional volatility being seen at both businesses right now? I guess, understanding the limited visibility out there, but what kind of a comp at Victoria's are you embedding in 1Q guide and for the year?

So we'll start with Nick.

Yes, hi, Anna. I don't know if we can genuinely sit here and factually comment on whether there's an impact associated with that. It wouldn't surprise me if it's a nation of fierce consumers and they're waiting for cash to come back. There could be an impact of that. But I think it would be dangerous and/or difficult for us to genuinely quantify that. I think it'll be interesting to see what will happen. And as I said earlier in the remarks, it's going to be difficult anyway because of the Easter shift. So it will be important to get through March and April and understand the combination of both of those months. So we shall see.

The guidance assumption for Victoria's for the quarter -- first quarter in total, is down low double digits. So call it 12%, 13%. Importantly, remember that, that number reflects the impact of the exits. And so the go-forward business assumed comp is a negative low single digit for the quarter. Thanks.

Your next question is from Simeon Siegel from Nomura Instinet.

Stuart, so just with the moving pieces on the top line, can you help quantify the puts and takes and the gross margin expectations for Q1 in the full year? And just thinking through, with the exits largely behind, you mentioned clean inventory. I think you called out beauty being up mid-single. Just shouldn't there be some merch margin improvement? So maybe any help thinking through the size of the pieces behind the significant Q1 decline.

Sure. The decline in gross margin percentage in Q1 is driven by the occupancy deleverage that I mentioned before. And so for the company in total, there's a slight decline in the merchandise margin rate. But the real phenomena going on within the gross margin line is the deleverage effect related to occupancy.

And then just thinking through those pieces, should there be a point where the merch margin starts -- or ends up being a positive tailwind to merch margin?

Yes, in the back half of the year, Simeon, in the third and fourth quarter.

Your next question comes from Kara Szafraniec from Northcoast Research.

Just a quick question about mix at Victoria's Secret. Is mix likely to remain a pressure point this year? And as mall traffic remains negative and mix skews to that lower price point, what do you guys see as the path to getting back to positive comps at Victoria's Secret?

So mix will be -- will present some pressure for Victoria's in the first half of the year as we went after the bralette and lower AURs for bra business aggressively in the second half of 2016. So the mix will present some pressure in the first half of '17, should not in the back half of '17. In terms of how we're going to grow sales at Victoria's Secret, it really gets back to the merchandise most fundamentally and then how we market and sell effectively, both in stores and online. And through some of the commentary previously, hopefully, you know that our dominant emphasis is on merchandise itself and then through compelling store design and compelling online presentation, good interactions with associate sales experiences in stores, that's how we drive growth in the business.

Your next question is from Brian Tunick from Royal Bank of Canada.

Two quick ones. Just wanted to hear more about PINK, which opportunities in category growth do you think are the greatest? I obviously know you're not getting out of swim there. But how big do you think that business could be? And what are the most exciting opportunities there? And then maybe just Nick could just talk briefly on the Signature. I think that was a little bit of a slowdown in the holiday quarter and curious what the timing is of the opportunity to course correct that product category.

Brian, I think, as you know, with respect to PINK, we continue to be very bullish on that business. And they've got a very strong loungewear and apparel business, and they've had that for a long time. And they've always had a very strong panty business. And they've also developed a very compelling high-growth, high-profit bra business within that brand. So in terms of the growth opportunity, we see -- and I realize how this may come across, but we see several billions of growth and opportunity really to double that business over the next 4 or 5 years based on results that have been achieved over time and our extrapolation mathematically around square footage in North America, let alone what we may be able to do internationally. As you know, that starts with a clear brand identity and brand position, and then a very strong merchandise and marketing execution consistent with that position and leveraging capabilities that you've heard us talk a lot about, including read and react and chase and short lead times and all of that, that whole mindset. And again, Denise and her team has such a strong understanding of that customer. They're not perfect. They don't get it right every time, but their record is very, very good. And when they do have a miss, which is inevitable in these businesses because of their short lead times and just their mindset of how they run that business, they adjust very quickly. So very optimistic about the growth potential for PINK over the next several years.

Thanks. Nick?

Yes, hi, Brian. So I think the best way to think about this is obviously, I mentioned earlier that one of the benefits of having a short-cycle business is that we get to leverage one of our best competencies, which is testing. So we've had a relatively aggressive testing agenda taking place during spring and that will continue. And those reads will be most beneficial for the back half. So more to come on that as we get to the back half. I think the other way of looking at it is and with each delivery as we go through the spring season, there will be newness that is of a nature that's helping us to evolve the brand as we move forward. And I'm talking specifically about Signature, as per your question. So we'll be in a read and react mode in the spring for the back half, and we'll also be in a read and react mode for things that we've put into the assortments that are coming anyway or have come and are coming anyway that will all lead to how do we evolve this part of the business. And so far, we're confident with what we're seeing and I think we're moving in a pretty solid direction.

Your next question is from Matthew Boss from JP Morgan.

So with the moderation in the core Victoria's Secret comp, how much of the decline do you think is company-specific versus category dynamics? And I guess, said differently, do you think you're losing share in the intimates category? Or is it overall category growth perhaps declining just given the lower AURs?

Yes. I think depending upon whether you measure share in units or dollars, you might get a little bit different answer because we drove very strong unit growth in 2016. We don't think about market share a lot, frankly, because as the market leader and the dominant participant in the category, what we're looking to do is to grow the market fundamentally. But while there certainly are some emerging competitors and some well-known names, if you will, and then some smaller emerging players, we're -- while we've always had competition from the beginning of the Victoria's Secret business, we think we're well-positioned based on all the equities that the brand has and the capabilities of the team and the organization to continue to be in a very good leadership position. And again, we drove significant unit growth in 2016 in our categories. Thanks.

Your next question is from Marni Shapiro from Retail Tracker.

I'd just like to dive in a little bit more into the bra business, the lingerie and bra business, and AURs specifically. I recall, last year, you had pressure on AUR from sale product and from couponing. It sounds like this year and the back half of last year, you had some pressure there from trial on sport and bralette. So looking forward through 2017 and beyond, when should we start to see AUR begin to stabilize? And then can you talk about the merchandise margin complexion of bralettes and sport versus, say, your traditional bras and push-up business?

Sure. Thanks, Marni. Short answer to your first part of your question is I would expect stabilization of AURs in the back half of '17, reflecting the commentary earlier about our aggressive push in the bralettes and sport bras that we pursued in the fall of '16. And those categories in the bra business do come at lower AURs. We'll be anniversary-ing that. And so I would expect that we would have a stabilization of AUR. And then I'm trying to remember the second part of your question.

Just the complexion of the margin between bralette and sport versus your traditional bra and push-up business.

Yes. Over time, Marni, we would expect to have those margin rates be similar to the overall bra business. And I said over time, we were very aggressive in pricing in 2016 to drive a lot of unit growth and a younger customer to our business. And that was intentional. It was by design, and we were successful in doing that. With that said, we will, through fundamentally differentiation of merchandise in those categories, look to have margin rates over time that are more similar to the overall bra business. And we're not formulaic about that. One should use a lot of judgment on that, and you got to think about dollar growth versus rates and so on. And we try to do our best at that. But maybe by example, if we thought about some other parts of our business over time, for example, the PINK business, there was a time when the PINK business had margin rates that were meaningfully below Victoria's Secret lingerie margin rates. That's no longer the case. And they did a great job through compelling merchandise, sourcing capabilities, speed, read, react, adjust to meaningfully improved margin rates while still driving terrific growth in that business. And we'll be looking to do the same in the sport bra and bralette categories.

If you pull out the sport bra and bralette category for just a moment and you look at your core bra business, the go-forward part of it, has that portion stabilized? Are you still aggressive there as well? Just trying to separate the 2 because you almost have 2 bra businesses right now.

I understand and I want to be a little sensitive to how much we give out on a call. But there was some AUR pressure in the constructed bra business in 2016. And obviously, we'll be looking to moderate that and get to flatter, improved AURs in '17 as the year progresses.

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

As we do look forward, what's the nature or general framework for how you are thinking about pricing between your core versus sports and bralette? And you did touch upon this, but I would love any additional thoughts on the nature of competition, just because, as we think about categories and channels and online pure plays, curious about what's happened with competition as you brief us on pivots you're making in the business?

Thanks, Oliver. So on the first question around pricing, pricing as a subject is a big subject. And at the end of the day, in our business generally, and it would be true in the intimate apparel business and the bra businesses, we want to create differentiated merchandise, compelling merchandise where we have emotional content and from that, as you know, pricing power. And we think we do that pretty well through the merchandise itself and through the quality of the store format, the online experience, interaction with sales associates, the emotional content in its fullest sense, first and foremost, the merchandise, but everything that surrounds it in the business. And so that's how we work to create value. And then we balance promotional activity to ensure that in important time periods and just to drive traffic in volume and transactions relationship over time that we're driving volume, balancing rate and pricing and dollar results. So that's how we think about it generally. I realize that, that may sound pretty general, but that's how we think about it. As it relates to competition, the first thing I would say, and this I realize, you'll take it for what it's worth perhaps, but frankly, I'm glad we're in categories that are attracting competition. So one of the things that we feel strongly about in this business is that we're in 2 great categories of retail, and that is personal care and beauty and separately, intimate apparel. And if we were in categories at retail where you'd say it was intensely competitive and the average margin was 4% operating income rate, I could think about some other categories of retail that might cause you to conclude one thing. Intimate apparel, personal care and beauty have been very attractive categories for a long time and there has been a regular flow of new competitors for a long time, 20, 25, 30 years. At the end of the day, based on the leadership positions that we have, the quality of the brands that we have and the quality of leadership that we believe we have in the business, we remain very confident about our ability to maintain and grow our leadership positions in those 2 broad categories of retail. So is there a little bit more noise out there today? Probably is. But again, we remain very confident.

Just a quick one with the pricing. Is sport going to be a trial here in the back half? Or is that a little bit TBD as you test, read and react? Curious about that because I know it's been a strategy to generate trial. But will that fade off or should we expect that in the second half as well?

I think we'll -- in both the bralette and sport bra categories, we'll begin to moderate the aggressiveness of our pricing as we work through '17. But that, in part, is a function of how compelling the assortments are.

Your last question comes from Susan Anderson from FBR Capital Markets.

Yes, so quick question actually on the international markets. Maybe if you can remind us when you started seeing the pressure on that business from FX. So when should you start to cycle it? And then it looks like the VSBA business is also still seeing some pressure. But any thoughts around that improving now that we're seeing beauty improve at VS in the U.S.?

Thank you, Susan. Martin?

Yes, hi, Susan, thanks for squeezing me in. I'll maybe answer the question on VSBA and then I'll throw it back to Stuart on the compare on FX. I think the patterns that we've seen in VSBA very much mirror the patterns that we've seen in the beauty business in North America. And as you know, under new leadership, we're starting to see some traction there and we're excited about what's in front of us for this spring season. And I would expect that to flow through in a replication model to all of our international businesses, be they in the big store format or the small store format. So yes, I think pretty much the same pattern that what you get away from home is the same as you get at home. Stuart, do you want to comment on when we cycle the FX?

Absolutely. Susan, currencies started impacting our company in total in, as you would expect, largely or meaningfully in the international segment really beginning in the fourth quarter of 2014. And that effect continued through '15, continued into '16 but moderated in the back half of '16. And we don't expect at this point a significant FX pressure in 2017.

Great. And I guess, I was wondering more on the tourist side. I think, obviously, travel has been, I think, lower because of FX. So I was wondering, if you expect that to pick up or stabilize any time soon in the international markets?

Martin, do you want to take that or do you want me...

Yes, I'd say very difficult to tell, really. I don't think people can predict what's going to happen in the travel market. But the extent of the change is relatively small, to be honest with you, Susan. What I would tell you, and I'm somewhat biased because I'm sitting here in China, is that China is absolutely fantastic. This is a great opportunity and I'm thrilled with what we're doing here. And the opportunities, both in the local market and in the travel sector in China, will be just spectacular in the years to come.

Great. Thanks, Susan. And thanks, everyone, for joining us this morning. We appreciate your continuing interest in L Brands. Thanks.

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