Good morning. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the L Brands Fourth Quarter 2017 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, Regina. Good morning, everyone, and welcome to L Brands' fourth quarter earnings conference call for the period ending Saturday, February 3, 2018. 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 earnings presentation are all available on our website, lb.com. Joining us today are Stuart Burgdoerfer, EVP and CFO; Denise Landman, CEO of PINK; Jan Singer, CEO of Victoria's Secret Lingerie; Greg Unis, CEO of Victoria's Secret Beauty; and Martin Waters, CEO of International. Andrew Meslow, COO of Bath & Body Works is filling in for Nick Coe, who is under the weather today. All of the results that we discuss today are on an adjusted basis and exclude the special items detailed in our press release. Thanks, and now I'll turn the call over to Stuart.

Thanks, Amie, and good morning, everyone. Although our fourth quarter adjusted earnings per share of $2.11 were above our initial guidance of $1.95 to $2.10, the upside was related to a favorable tax rate. Absent the impact of the lower-than-forecasted tax rate, we delivered an earnings per share result toward the lower end of our range. On a 13-to-13-week basis, operating income declined by 5%. And although this result is an improvement versus the third quarter, we had expected to do better. Our performance was mixed. Growth in operating income at Bath & Body Works versus last year and our forecast was more than offset by a decline at Victoria's Secret. Turning to 2018. We're very focused on improving performance in the Victoria's Secret business, staying close to our customer, improving the customer experience in stores and online and improving our assortment with compelling and new product launches. We will continue to be disciplined in the management of inventory, expenses and capital. Following an extensive evaluation of our wage rates by market, we are making investments in our workforce by increasing wage rates and benefits, principally for hourly associates. These investments will help us continue to attract and retain high-quality talent and be an employer of choice. The impact of these investments is approximately $100 million in 2018 and is included in our guidance. Excluding the impact of these wage investments, our operating income forecast is for low-single-digit growth at the high end of our range. We as a management team would not be satisfied with that result and are working hard to do better. With that, I'll turn the discussion over to Denise.

Thanks, Stuart, and good morning, everyone. I plan to share a brief overview of PINK's Q4 results and brief thoughts about our outlook leading into spring. For the quarter, our intimates categories, specifically bras and panties, both drove mid to high single digit growth versus last year while expanding margin rates. Bra sales and unit growth were driven principally by our Wear Everywhere and the sports franchises, driven by a strong fashion offering. Panties were also strong across all silhouettes and collections, driven by continued newness. For holidays specifically, we felt strongly that we succeeded in servicing the gift giver through a strong fashion offering. Our gifting collections as well drove strong double-digit growth versus last year on an expanded margin rate. Apparel had areas of success and disappointment, therefore, we would characterize our apparel performance as mixed. Key packages related to opulence, cozy and bling that were shared at the prior investor walk-through performed very well and experienced high sell-throughs. The balance of the apparel assortment, however, disappointed our self-purchaser, and we're applying those learnings to our go-forward assortment architecture. Therefore, in aggregate, PINK's Q4 comps were up slightly and category performance, as mentioned, was mixed. Despite this result, we continue to feel positive about the strength of the brand and our ability to serve and emotionally engage our customer. Our digital and social channels are strong, engagement is up and the PINK Nation program continues to grow and be effective. Leading into spring, we'll continue to focus on our customer and operate our business with speed, agility and simplicity. Thank you, and I'd like to turn it over to Jan.

Thanks, Denise. Good morning, everybody. As you read in the pre-circulated materials, 2017, we made progress on resetting the business post the changes in 2016. While results overall were down, we improved sales and margin throughout the year from down high-single digits in Q1 to down mid-single digits in Q4. This progress was led by a deep focus on the customer and products starting with the core, our bra business. Based on continued engagement with the customer, we continue to rebalance the bra mix, offering her choices of bras with benefits, balanced with high fashion and constructed and unconstructed. This was led by launches of Illusion, Angel Max, T-shirt, and the results here were sales growth in our constructed bra business. In addition, we began to reset panty business as promised, making progress with comps in the 5 for panty program, which were up 12 of the 13 weeks in non-red-line product during the quarter. Our sport business and base continue to grow with apparel comps up and sport bra AUR up. We offered her key adjacent categories like casual sleep and lounge that we shared at the last investor meeting that worked to attract new customers and had a 40% attachment to bra selling in Q4. We integrated digital into the brand, and progressive growth has happened throughout the year, ending with a double-digit comp up in Q4. Engagement with millions of consumers in-store and online continues to be our competitive advantage in terms of product creation, but also in terms of how we stay connected and build and retain loyals. We're proud of the progress but also recognize there's much more for us to do as we continue to reset this business. In 2018, we're focused on continuing to strengthen the core with bras with benefits, balancing with fashion. And we feel optimistic about our innovation and fashion pipeline in this space. We're continuing to improve our panty business by focusing and reframing our 3 for business and single ticket. We're focused on building our key adjacent categories, which are important, as mentioned, to driving our core bra business and new customer acquisition and retention. With customer engagement, we will be leveraging our new integrated marketing team and our marketing spend into performance marketing in efforts that drive loyals and results across channels. Last but not least, our leadership team for Victoria's Secret Lingerie is in place. I'm most excited about the competency, chemistry and the composition of this team as it's a blend of 100% L Brand knowledge with external knowledge, the diversity of those thoughts is bringing new solutions. Again, I feel confident and optimistic that we are making progress, and I look forward to your questions. Turning it over to Greg.

Thank you, Jan. As you read in our prepared remarks, Q4 ended a year of significant growth and progress for the beauty business, with mid-single-digit comps and merchandise margin growth. Over the course of the year, we've experienced positive sequential growth in sales and margin. Our best-selling fragrances are up year-over-year, where we drove mid-single-digit growth in sales and margin. We transformed our Mist Collection business through relevant fashion and newness. Our digital channel drove significant growth for the quarter and for the whole full year. As we look forward, at the beginning of February, we successfully relaunched the PINK beauty business, which is off to a strong start. Last week, we launched Bombshell Seduction, a new complementary scent to our #1 fragrance, bombshell, with promising results. We continue to be focused on driving fashion and newness through Mist Collection, lip and accessories. We are confident in our business model and our continued growth. We're focused on building upon what's working, making big bigger, leaning into speed and agility, testing and learning from new ideas and always maintaining connectivity to the Victoria's Secret and PINK brands. Thank you for joining this morning. I'll hand it over to Andrew Meslow.

Thank you, Greg, and good morning, everyone. I will make just a few comments to build on the prepared remarks that were shared as part of the earnings release. At Bath & Body Works, we are encouraged that we were able to deliver solid results in the fourth quarter, our biggest and most important quarter, as both sales and operating income grew 11% in the 14-week period. As Nick described on the Q3 earnings call, we had seen sales momentum building through October as we were able to utilize our read and react capabilities to chase into more of the seasonally relevant collections that the customer expects from us in the fall. That same read and react approach on both chasing seasonal product and flexing holiday promotional activities allowed us to maintain and build sales momentum in our key November and December Christmas selling season. We also were able to end the year with a very successful semiannual sale that drove strong January comps. Looking forward to 2018, we remain cautiously optimistic that we can continue to drive strong sales and operating income growth while also investing in the long-term health and relevance of our brand. Those investments include: Developing and launching new and innovative products, continuing to invest in our fleet with the ongoing remodel strategy that continues to deliver solid results and investing in our customer experience in both our stores and digital platforms. Thank you, and I will now turn the conversation over to Martin.

Thanks, Andrew. Good morning, everybody. As I look back on our international business' performance in 2017, at a high level, I have 4 key takeaways. Firstly, the partner-based businesses are doing well, with good operating income growth for the quarter and the year and at high operating income rate. Secondly, we continue to invest in China, which we believe will be a significant market for us. VSBA stores and e-commerce through the Tmall platform are both doing well. And the 7 full assortment stores, 5 of which were opened in the fourth quarter, are progressing pretty much as we expected. Thirdly, as you know, the U.K. business was very challenging for us in 2017. And finally, overall, comps in the international segment were broadly in line with the patterns that we saw in each of our North American businesses. In 2018, our priorities with respect to international are: Firstly, continuing to scale in China, where we'll open another 10 to 11 stores; secondly, improving our performance in the U.K.; and finally, continuing to build on the success of our partner-owned stores globally. With that, I'll turn it over to Amie.

Thanks, Martin. At this time, we'd be happy to take any questions that you might have. [Operator Instructions] Thanks, and I'll turn it back over to Regina.

[Operator Instructions] Our first question will come from the line of Brian Tunick with the Royal Bank of Canada.

Question, I guess, Stuart, maybe on the $100 million wage investment. It sounded like you guys were already ahead of the curve on spending on the employee side. Can you maybe talk about any productivity benefits that you're expecting from this $100 million spend? And then maybe Jan can talk about the decline in the unstructured bras. How much were units down in that category? And when do we start to lap the unit declines in bralettes as we move into the year?

So Brian, it's Stuart. Thanks for the question on our investment in wages and benefits. As you appreciate, having highly talented, stable workforce is critical in our business. And as we looked at the labor markets, as we looked at where we stacked up competitively, we made an evaluation market-by-market to increase wage levels and enhance maternity and paid time-off benefits, focused on our hourly workers. Again, labor markets are tightening up. Major retailers have recently announced increases in wage rates, and we want to make sure that we're very competitive in terms of how we pay and the benefits provided to our workers. As to productivity, our hourly workforce is critical in the success of our business, and we look at productivity in lots of ways. And that starts with having a very talented, stable workforce and we think these changes will contribute to that front. Thank you.

Okay. Relative to the bralette question, Brian. Thank you. I would say we are working on balancing our mix. As you know, we launched bras like Illusion and the T-shirt Bra recently, was just helping us get there quicker. We have -- we're lapping also in Q1 and Q2 significant bralette business. And I would say the more velocity we have on constructed, the faster we can get there, but we're still in a balancing mode and the bralettes are still part of our mix. But I'm very confident the bras that we are launching, and those driving rebalance in the time needed.

Your next question will come from the line of Omar Saad with Evercore ISI.

Can you talk about the gross margin line a little bit? It looks like when you make the adjustment for the reclassification of credit income, you're kind of implying gross margins will be down 30 bps. But given the 2% to 4% comp guide, it feels, like, maybe there should be some leverage in there on occupancy. But maybe help us walk through how we're thinking about the puts and takes in gross margin this year.

Yes. So Omar, it's Stuart. So we think there will be -- and we'll work hard to do better than this result, but we think there will be some slight for the year, some slight deleverage or decline in the merchandise margin rate. And we think that the buying and occupancy component of -- is all at the high end of the range. The buying and occupancy component of gross profit will be about flat year-on-year. To your point, the classification of the economics related to the proprietary credit card provided benefit in that line, so that is part of the equation and put pressure on the SG&A rate. So we're going to work hard to improve on that result through the year. But as we made a judgment about how to position things at this stage, we think there will be a little bit of pressure on the merch margin line in 2018.

And Stuart, is that promo-driven? Or are you making some investments in price?

It's a combination. I'm not trying at all to avoid that question, Omar. It's a combination of a lot of things, as you can appreciate. And as we just balanced the recent trends in the business along with our views about the quality of ideas that we have and what it will take to move the business in 2018, we think there will be slight pressure on the merchandise margin rate, but it's a function of a lot of different things. And again, we'll work hard to get to a better result. Another thing that we shared consistently, and again, you would appreciate this is, is it's always a balancing act between volume and margin rate. And we're focused very much on margin dollars, and we do our best to -- obviously, to strike that balance between volume and margin rate. And a last point in the equation is that as our business grows at a faster rate online, in the direct channel, there is a little bit of mix dilution on the gross profit or merchandise margin line in that business. Again, our direct businesses is a very profitable business, as you appreciate. But in terms of a rate mix effect on that line, you get a little bit of drag through the faster growth rate online than in stores.

Your next question will come from the line of Kimberly Greenberger with Morgan Stanley.

My question is on the Victoria's Secret operating margin. I'm wondering, Stuart, if you could explore what needs to happen, either in 2018 or 2019 and beyond, that would allow Victoria's Secret to start recovering some of the 500 basis points of operating margin lost over the last 2 years? And I just want to confirm on the answer to Omar's question regarding the direct business at a lower merchandise margin. Is that strictly because the shipping expense is classified as a component of merchandise margin? Or is there some other factor that causes the online merchandise margin to be below stores?

I'll take the last part of your question first, Kimberly. And that is, as you suggest in your question, it is due to the fulfillment and shipping cost economics providing a drag on that line versus the store business. So that is, in fact, what's happening. With respect to the operating income rate for the Victoria's Secret segment, as you appreciate from following us a long time, we believe, based on the quality of the Victoria's business, the PINK business is part of it, that, that business, in time, should get back to, if not a little better than its best-ever result. And it's not going to happen overnight, as you appreciate. But there's no reason, structurally, that, that can't be a high-teens operating income rate business when it's running at its peak, if you will. And we see that opportunity. In terms of how to get there, the #1 driver of that or determinant of that will be volume. And so we've had deleverage in the P&L as part of the category exits and other pressures on top line volume that have hurt the operating income rate of that business. And then secondarily, the merchandise margin rate is down meaningfully versus peak, given needs to have different types of promotion and other pressure in the business that, in the near term, have put pressure on that merchandise margin rate. But the headline answer is driving more volume through that business and also being thoughtful and tough-minded about expense trade-offs in that business. We made a big announcement today about investing in wages, but there are lots of aspects to the P&L, if you will. And we will continue to scrutinize all the significant areas of spend in that P&L to make sure that they're appropriately driving sales and profit dollars to the business. But short, short answer is we need volume. And the team's very focused on that through merchandising activities and other activities to drive volume.

Your next question comes from the line of Paul Trussell with Deutsche Bank.

This is Gabby Carbone on for Paul. So our question is on the SG&A guidance for '18. Could you quantify the impact from marketing investments? And how these investments compare to the amount you spent this past year?

Yes. Absent the effect of the classification of the economics on the Angel Card, marketing will be down somewhat in 2018 versus 2017 for the company and for the Victoria's segment.

Your next question comes from the line of Anna Andreeva with Oppenheimer.

This is Sam Lanman on for Anna. So you've been using various promotions at VS for some time now. What has worked the best and what hasn't? And what kind of markdown cadence do you expect at VS in 1Q and for the year?

So Sam, I'm going to go first to Jan and then to Denise for their thoughts around that.

Thanks, Amie. So I'd say the things that are most effective is when we are really doing consumer relationship marketing. And when we do that, we actually speak to her in a way that resonates, and then she responds. And we're able to build and have shown that we can build loyalty with her. So promotions that really attract her for bras or products that she's already bought from us, we build upon that knowledge. We have a ton of data about who's buying from both stores and online. And we direct messaging, recommendations and products that she'd be interested in. When we offer her that opportunity with varying degrees of brand-accretive moments, she comes in and responds. That's when we're most effective.

Denise?

So expounding upon that, I would echo that our most effective promotional vehicles reside in what has been intentionally layered into the marketing calendar in a plan-ful manner and points specifically at our core constituency, predominantly the PINK Nation membership, which is comprised of our highest-value shoppers and tends to be highly responsive when we point strong promotional strategies at them, that again, are intentionally layered into our calendar, not reactively laid into our calendar.

Your next question comes from the line of Paul Lejuez with Citi.

I'm just curious. What's the plan of attack for improving the U.K. business? And how does your experience there influence your thinking about growth potential in other European markets?

Thanks, Paul. Martin will take that one.

Yes. Thanks, Paul, for the question. First thing I would say is that the pattern of performance we see generally in international is pretty much the same as the pattern that we see the domestic businesses, be it in Victoria's, be it PINK, be it in BBW. So I think we always say, if you have strong business at home, you have strong business away. And that's pretty much the shape of it in the U.K., except that the U.K. performance has been exacerbated by very, very difficult market conditions there that I talked about on previous calls, don't need to go into now. Suffice to say, it's a relatively small business, 20 stores. We'll be growing it in a pretty small way, only adding stores where we've already committed real estate, and just really doubling down on the focus of execution, making sure we can deliver that business the best that we possibly can. I'll be spending a lot of time there, and certainly one of my key priorities going forward.

Martin, what is the plan for the rest of Europe, then?

For the rest of Europe, we have 2 partners in place. We have VSBA stores up and running, and we will be opening some VSFA stores in 2018 and into 2019. So it's the market, it's the area of the world we are least penetrated, as you probably know. We feel good about the partners that we have, and we will be advancing that. It's a lower priority than other areas, as you know. #1 priority is China. We have a very big business with Alshaya in the Middle East and Eastern Europe, that's a high priority. We see great growth in Southeast Asia. The continental Europe is not the highest priority, but rest assured, we do have partners there and we will be growing the business there.

Your next question comes from the line of Adrienne Yih with Wolfe Research.

Stuart, I was wondering if you can talk about the store footprints, perhaps some color on exposure to ABC malls. I know they're largely almost all profitable. And the opportunity for rent reduction there? And then just another question on the e-commerce. You had said it's profitable, but is it more profitable as a channel than the brick-and-mortar currently?

Yes. So I'll take the last part of that, again, first. So our online businesses are more profitable than our store-based businesses, both at Bath & Body and at Victoria's Secret. With respect to our real estate footprint, as we've outlined pretty consistently, we are well diversified across mall types. And by reminder, about 30% of our store locations are not in enclosed shopping malls. We very actively managed the fleet, opening and closing stores every year. As we look at our capital spending plans for 2018, the level of activity and the level of investment in Victoria's Secret is down versus the last several years. And we're continuing to invest at a pretty steady rate in the project activity for Bath & Body Works, those White Barn remodels as we refer to them, we're continuing on that program, given the strong sales results that we've seen. And we're continuing to invest as it relates to real estate store buildup in China, as you would expect. So we believe we're moderating, we're adjusting our investment in North America appropriately based on recent performance. With respect to strategy or a game plan about rent reduction, the headline there would be we certainly don't want to overpay for rents and we don't believe that we do. And with that said, as we've talked about pretty consistently, the most important thing as it relates to managing real estate is to ensure that you have the best locations. And certainly, in the best malls, there is some inflation when one renews leases, and it's well worth it in terms of the sales result that you get and the profit dollar result that you get. But in a mall situations that are more difficult in terms of the nature of the mall, we have very favorable rent terms, including a lot of flexibility where we can leave those situations with little, if any, lease liability based on tenancy provisions and other aspects of those leases. So again, actively managing the portfolio, but rent reduction as a strategy per se is not a big part of our strategy, understanding that we're not looking to overpay on rents.

Your next question comes from the line of Dana Telsey with Telsey Advisory Group.

Hello? It's Dana.

Dana, we hear you.

What changes did you see in customer demand at PINK loungewear? And what changes are you making in the assortment to improve trends there? How do you think about it go-forward? And Stuart, any puts and takes as we go through 2018 in terms of quarterly cadence to be aware of?

PINK, it's Denise.

I would say that the headline with respect to loungewear, and this would be with the exception of those gifting trend strategies that were well received by the market, we did have some fashion misses in the core loungewear segment, and that has been the primary drag, if you would, on the aggregate lounge performance. Those areas have been well identified and isolated. And through the agility work that we do in region with our mass partners, we are rapidly course-correcting the mix issues as we've isolated them. I think we scan situation at the present time and see signs that we can return the business to normalcy within pretty short order.

Great, thanks. And Stuart?

Dana, with respect to color in terms of the quarters of the year without getting into the detail of it, which is not what you're asking, what -- the headline I would give you is that we'd expect that the merchandise margin rate result, the year-on-year result in merchandise margin rate, will improve sequentially through the year. So that's the key thing that I would highlight. The other thing to be aware of is based on the joy of the fiscal calendar, there is a calendar shift that will benefit particularly the second quarter in 2018 versus '17 as we pick up a back-to-school week that we wouldn't have had a year ago. But in terms of the fundamentals of the business, apart from the calendar, expecting and working hard to see progress evident through the merchandise margin rate result as we move through the year.

Your next question comes from Kara Szafraniec with Northcoast Research.

I had a quick question on Bath & Body Works. Hoping maybe to get some more color on the decision to increase the promotional cadence in the fourth quarter. And how does your promotional plan in Bath & Body Works through fiscal '18 compare to fiscal '17?

Thanks for the question. So through much of 2017, we actually communicated that merchandise margin rates were down because of increased promotional activity that was required to drive results in the first 3 quarters. But in the fourth quarter, actually, what we communicated was slightly different in that we were about flat promotionally in the November and December time frame. We had a lot of new and differentiated ideas from a promotional standpoint, but in aggregate, about flat. Really, what drove the increase in promotional activity for the full quarter was the outperformance of our semiannual sale activity in the month of January, and that is what fundamentally put the drag on merchandise margin rate for Q4. On a forward-looking basis, as we've discussed on prior calls, we generally enter into any time frame planning essentially flat promotional activity year-over-year, and then we adjust up or down accordingly based on what we see from a combination of activities, including customer acceptance of our products, traffic patterns that we see both in stores and online, and then the results of the very diverse group of tests that we're constantly running. And those group of tests are really what -- when we talk about our read and react capabilities, it is those group of tests that we look at, where results both from a long-term strategic ability to make changes to our promotional cadence, get higher AURs as we make investments into our products. And then very importantly, on a very short-term basis, where literally day-to-day, week-to-week, we may change our promotional activity up or down based on the results of those tests in order to maximize short-term results. So long-winded answer to your question in terms of on a forward basis, we would be expecting relatively flat promotional activity and we will adjust accordingly.

Your next question comes from the line of Mark Altschwager with Baird.

Stuart, just on the digital front, can you talk about some of the key investment priorities this year?

Yes. The most important thing that we're doing -- Mark, thanks for the question, is we're making substantial investments in the, what I'll call, the core technology platform for the Victoria's Secret digital business. It's a platform we've been running with for a long time that needs to be updated, and we're in the process of updating that. And it will provide the foundation to do a lot of things from a customer standpoint that we'll look to do over the next several years. But the most intensive activity in 2018 is to replace a platform we've been running with for a long time with the current platform. Again, that will provide the foundation to do a lot of stuff that we can't today do at present. It also gives us a foundation for global business over time on that same platform. But '18's investment is a significant one, but I would describe it as foundational.

And just quick follow-up there. Stuart, you've long talked about goals to grow SG&A slower than sales. And you've shown success over time. Just given the current reality on the labor front and the strategy you talked about digitally, I mean, is that still a reasonable goal over the next few years, taking kind of the $100 million out of it for this year?

I think it depends on time frame which you recognize in your question. But I would say, over the next several years, we'll look to -- and it gets back to Brian Tunick's question, which is how are you going to get productivity out of that investment? And we expect to get productivity out of that investment through more capable, more stable, lower-churning workforce. But that will take several years to get done. But we will be very focused on it. And we won't wait several years to get after that. But it will take a couple of years to play through the numbers.

Your next question comes from the line of Chethan Mallela with Barclays.

I want to ask about investments in the China business. I believe you had a net loss of around $50 million in 2016 and had been expecting the losses to peak in 2017 and then step down in 2018. So can you provide a little more detail in the actual EBIT impact this year in 2017 and just how you're thinking about that for 2018? And then as a quick follow-up, I think at ICR you mentioned that in that market, there were some initial learnings around product-sizing. So is that fully resolved? And can you just give an update on where that stands?

Thanks, Chethan.

So thanks for the question. As it relates to the operating loss in China in 2018, it will be similar to the amount in 2017. Again, we'll work hard to improve on that result. But in our current view and what's implicit in our guidance is an '18 loss that's similar to the '17 number. We had thought 6 or 12 months ago, that might be slightly improved. But as we sit here today, we think it'll be about the same, and we'll work hard to get to a better result. And again, you appreciate the view that we have about the long-term potential of that market and our investment in it. There's a lot of things that go into it in terms of preopening rents and various dynamics that can be a bit hard to predict in terms of their specific timing. So that's where we are financially with it. And turn it over to Martin on the other part of the question.

Yes. When we opened the lingerie business in China, we started with 2 stores deliberately, just 2 stores, in different geographies, so we can get a read on what was happening with the sizing. And as you would expect, we anticipated that the customer were to come up smaller than in other parts of the world, and we distorted merchandise accordingly. Well, as soon as we opened, realized that we hadn't distorted anywhere near enough. The customer is significantly smaller than we see anywhere else in the world, and that shows up particularly in 32 band bras. So your question is, have we resolved that? Yes, we have. We now have the same representation of choices in 32 band that we have in our most popular size, which is 34 band. And we have significantly more depth of inventory. So when the 5 stores that I mentioned earlier opened in the fourth quarter, they opened with at least 50% of their bra inventory in 32 band or smaller. So yes, we've resolved that. We've also made additions in terms of color, where there are different customer preferences around color, red being particularly strong. And yes, we remain confident in the appeal of the brand and our ability to execute. So thanks for the question.

Your next question comes from the line of Ike Boruchow with Wells Fargo.

Martin, I'm going to keep you busy. Just another follow-up on the China business. I guess, just when we take a step back, you guys have taken that business in-house about 2 years ago. Can you just talk about the pieces of the business where you're pleased or you're seeing above-plan results? And maybe on the other side, just maybe where you hope you could have done a little bit better and hope to do better, maybe piecing that business out across your online Tmall business, the retail stores, the flagships you've opened. And then just on top of that, just what kind of revenue growth should we expect in 2018 just for China specifically?

Yes. Thanks for the question, Ike. I could take the rest of the call talking about China, and my colleagues around the table asking me not to, so I'll be relatively quick. There are 3 components to the business in China. You're right, when we took over the business from our partner, [ Balmain ], who did a terrific job, there were about 30 VSBA stores widely spread across the country. And following our ownership of those stories, we've seen significant improvement in comp performance, not just in the first year, but in the second year on top of that. So very pleased with the performance of that business. And what we have done is we've closed some of the stores where the deals weren't as good as they should be. But we definitely see potential for the VSBA business, for the standalone beauty business, to grow significantly across China in the coming years. So that's the first part. The second part of the business is the online business, which has been through 3 phases. We began with Tmall global, which is shipping from North America on our 14-day lead time. We then move to Tmall local, which is shipping on a next-day basis, and business has been growing very rapidly. It is now more than our largest store, as one might expect. And we're seeing growth day-on-day, week-on-week, a really, really, really good response to that. We'll also, this year, be adding a China -- .cn site so that we can direct customers directly from all social media platforms to our own site as well to the Tmall site. So significant progress online. And of course, it enables us to reach every corner of the Chinese market, which gives us great learning in terms of sizing and customer appeal for geographies where we're not currently active. And then a third business is the full assortment stores where we are anchored with 3 flagships that enhance presence of Victoria's in China, in Hong Kong, in Shanghai, in Beijing. And then opening smaller mall-based stores at sort of 5,000 to 7,000 square feet in all of the major Tier 1 to Tier 2 cities. I mentioned earlier, 5 open right now, we'll add another 10 or 11. And I think you probably have enough data there to do your own modeling about how we see the growth of the business. It will be significant growth year-over-year. And on what the plan is for '19, we'll wait and see. We'll read through the early part of Q1, Q2 and then we'll make commitments for '19 beyond that.

Your next question comes from the line of Oliver Chen with Cowen and Company.

Had a question for Jan. Jan, how are you thinking about the matrix that you laid out with day/night and overnight in terms of the occasions? And also, what you're solving for in the context of the recent performance? And a second general question, just about LB and customer analytics. What are your thoughts about loyalty and analytics to drive customer acquisition, retention and lifetime value as you look to use that and to empower that? What can happen there? And can there be an interplay with utilization of direct mail just to ensure that, that is a healthy brand-appropriate lever?

Okay, let's start with Jan.

Thanks for the question. Yes. Well, as we mentioned along the way, it always first starts with the customer, know her, and then solving her sexy, I like to say, with product, and then serving her. And in the solve part, we do believe there is a day/night, overnight part of her life. And in addition to that, throughout the year, we've launched products against that. So if you think about her everyday, the Illusion launch is an everyday bra. It has VS technology inside, so moving wings, and we saw great success in the launch last August. And we relaunched about a week ago a new strapless bra, and there's been really strong response. In the night or fashion part, high-fashion part, Dream Angels business, for us, has been a real shining star. It's about plus 30%, let's just say growth, in the last fiscal year, really steeped in fashion, bra that's fashion-matter. A lot of bras are outerwear at this moment, and it comes from this book of business. And in the highly provocative segment, we do also have some moments of great, great brightness. Our collaboration last holiday drove real interest in this space. We saw bras with very high ASP with baskets and new customers coming in. There's clearly work to do in all 3 sectors to offset the highly promotional unconstructed bra business that was there the year before. But I like that I'm seeing traction against her wardrobing for her life, same consumer buying for different reason. Second part of the question, I'll turn it to Stuart.

Yes. Thanks, Jan. On loyalty and analytics, just to cover it broadly, Oliver, obviously, it's an important subject. As a company, L Brands has made and is making investment, discrete investment in people and technology to deepen our big data, machine learning, analytical capabilities, and we're getting some utility out of that. Obviously, a lot of information in our business about consumer behavior, customer behavior. And I'd say we're making progress on that big agenda. A lot more to do, but we're making meaningful investments in that space. With respect to loyalty, probably 3 main thoughts. One is loyalty, first and foremost, comes from great experiences with our brands in stores and online. And everyone in the business is focused on that. As you know, the Angel Card at Victoria's has a loyalty component to it as a second thought. But as a third thought, Victoria's, PINK and Bath & Body Works all are evaluating, thinking about -- nothing specific to announce in detail today, about loyalty programs beyond that, but no specific announcements today. And what that may look like in '18 or '19, but a big subject. But investing in capabilities, very focused on great experiences. Again, Angel Card is a meaningful portion of tender and customer activity within Victoria's. And there's more to do. Denise has a great following through PINK Nation. That's another example of a loyalty communication. But there's more for us to do, and we're sorting out what those priorities will be for '18 and '19.

We have time for 2 more questions.

Our next question will come from the line of Janet Kloppenburg with JJK Research.

I have a question for Denise and for Jan. Denise, perhaps you could talk a little bit about your lead times and your confidence in being able to turn around the fashion business in short order. And maybe a comment on trends in the logo business of PINK. And Jan, would you review your most successful traffic-driving initiatives at Victoria's Secret? I'm wondering what the learnings are there and how you can capitalize on that as we look forward.

Thanks, Janet. We'll start with Denise.

So with respect to lead time, we worked systematically over, I would say, the last 3 to 5 years on doing 2 things with respect to lead times. One is effective in-region work through our partnerships that would facilitate speed within the manufacturing sector. Equally looking for opportunities within our own sphere of influence, what I would refer as the upstream work, to simplify our model to enable faster decision making that then flows through [indiscernible] operate more efficiently on our behalf. So we make slow and steady improvements. We see opportunity every year to make that better. And I think we avail ourselves of those opportunities as the opportunity resides in speed always. With respect to the logo business, our hallmark has always been the logo of the brand. It continues to be a cornerstone of our success. We, however, happen to be in a trend that pays some deference to brand logo, known as logo mania. So we take full advantage of the market interest in that particular sector, as freely as we might, preserving the integrity of our own logo as a reference point, which has always been very important and meaningful.

Great. Thanks. Jan?

Sure. Thanks for the question. I would say, just building on what Oliver asked, it starts, first and foremost, with -- great traffic comes from great product, which comes from great consumer insights and customer insights. So we feel really confident about the exposure and time we have with customers and the product that we're building against that. And then once we really build the assortment in a way that emotionally connects, we drive traffic. The next thing that's important is, of course, the engagement. We're seeing great traction, most recently engagement on social media, as well as our emails. When we get into that dialogue with her and we really are agile with that vehicle, we see traffic because she has to be aware of what we're building. That awareness is a really important thing, obviously. And then we do reward her for shopping, for our existing customer, to build loyals. And we also surprise and delight those that just started shopping with us, and we do that many different ways, depending on the moment, depending on the book of business. But it is a very thoughtful approach. It starts with connection to the consumer, product, engagement, and then a way to reward her or thank her for being part of our loyal program.

Great. Thanks, Jan. Janet, go ahead.

Yes, I just wanted to ask Jan. It seems like she wants to be rewarded, and that's a discounting, is really what drives the customer traffic. I'm just wondering, as the product continues to get better, and I do think it looks great, do you have confidence that, that level of rewarding her or discounting, and hits the margin, can start to come in a bit?

Yes. I don't think rewarding is just discounting, right? There are many ways to do, as Stuart mentioned and Denise has proven with PINK Nation, there are many ways to have a reward for your customer. Simple things like engagement with her, giving her early access to our fashion show online, content that she'd want from us. There are -- we have many ways to reward the customer, so I think of rewarding is a much broader spectrum, but thank you for the question.

Last question, please.

Our final question will come from the line of Roxanne Meyer with MKM Partners.

My question is for Greg. I know that you launched beauty at PINK. Was wondering how you think about that business, how big is it now and how do you see the opportunity? And then just a follow-up on the wages and the workers. I know that you spent the last couple of years investing in your full-time workers. And I'm just wondering if you're satisfied with the balance of full time versus part time. Is that optimized? And are you getting the productivity out of that balance that you're looking for?

Thank you for the question. We're very excited about PINK. It launched -- relaunched in our stores at the beginning of February. We spent a lot of time connecting with our customer to evolve the assortment. We have a deep connection with the PINK customers through our campus reps, and so we spent a lot of time getting to know her and tailoring the assortment appropriately. The early reads are very strong. You can see it online and in our stores. Lots of excitement around it. We started in holiday in Q4 really going after PINK in a much bigger way with some key items that sold quite well, and we're driving traffic into the store. So we're overall very pleased. It's very early days. And it's an under-developed business for us, we recognize, but we see big opportunity in the future.

Roxanne, it's Stuart. With respect full time and part time complements and how we manage our sales force in stores. I would say we've made progress on that opportunity. And with that said, it's complicated, as you can appreciate. Fundamentally, what we're trying to do, wherever possible, is to have associates work more hours per week so that they're more familiar with the assortment, the business, the customer, that's pretty intuitive. With that said, we have a business that has different traffic patterns by day of week and even within a given day. And so we know you've got a pretty variable traffic pattern that you also got to figure out how to deal with and optimize. So I'd say we've made progress. And the goal is to have people working as many hours as possible that makes sense economically because they'll have a better familiarity, again, with the store, the merchandise, the customer. And the other key initiative we're focused on, which drives in part of our changes on wages and benefits, is we're continuing to work on reducing turnover in our stores as well to have that more consistent, knowledgeable sales force. Thanks.

Thanks, Stuart. And thanks, Roxanne. Thank you all for joining us today, and thank you for your continuing interest in L Brands.

Ladies and gentlemen, this concludes today's conference. Thank you all for joining, and you may now disconnect.