L Brands' CEO Hosts Annual Investor Update Meeting (Transcript)

| About: L Brands, (LB)

L Brands, Inc. (LTD) Annual Investor Update Meeting October 16, 2013 8:30 AM ET


Amie Preston

Leslie H. Wexner - Founder, Executive Chairman, Chief Executive Officer, Chairman of Executive Committee and Group President of Lingerie

Stuart B. Burgdoerfer - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Martin Waters - Executive Vice President of International


Roxanne Meyer - UBS Investment Bank, Research Division

Thomas A. Filandro - Susquehanna Financial Group, LLLP, Research Division

Oliver Chen - Citigroup Inc, Research Division

Albert Chen

Janet Kloppenburg

Richard Ellis Jaffe - Stifel, Nicolaus & Co., Inc., Research Division

Kimberly C. Greenberger - Morgan Stanley, Research Division

Dana Lauren Telsey - Telsey Advisory Group LLC

John D. Morris - BMO Capital Markets U.S.

Jennifer M. Davis - Lazard Capital Markets LLC, Research Division

Paul Lejuez - Wells Fargo Securities, LLC, Research Division

Omar Saad - ISI Group Inc., Research Division

John D. Kernan - Cowen and Company, LLC, Research Division

Margaret E. Kalvar - Harding Loevner LP

Amie Preston

Good morning, everybody. We'd like to welcome you to our Annual Investor Update Meeting. We're very pleased to have all of you here. I'd also like to welcome everybody that's listening in on the webcast.

Sorry, quick Safe Harbor thing, matter of formality, any forward-looking statements we may make today are subject to the Safe Harbor statement found in our SEC filings.

And with that, we're going to get started. And it's my pleasure to introduce our Chairman and CEO, Les Wexner.

Leslie H. Wexner

Thank you, thank you, thank you. Well, I'm in a playful and good mood today, considering all the static that's going on around us. Happy to be here with investors, analysts, bankers, friends, and I think there's a significant number of people that are listening in or on the webcast this morning.

I'm going to talk a little bit kind of about where we are and where we're going. Clearly, we are headed to the future. Stuart will bring you up-to-date on all the financial metrics, which I know you're always interested in. And Martin Waters will talk about International.

The business is headquartered in Columbus, Ohio. We're very close to Cincinnati, and probably closer to Cincinnati than Cleveland. And we're in the population center of the United States, and we look -- well, we're also in the population center in North America, and we look -- we think of ourselves as equidistant between Asia and Europe. So we're very well positioned. And in Ohio, we [indiscernible] it's the heart of it all, so I'm very patriotic and I'm also a loyal Ohioan and a Buckeye.

And in light of the current situation, it would be obvious probably to everybody in the room that just over time, we've made friends with people in high places. So understanding the situation that the country faces and what's on everybody's mind, I did talk to one of my friends, who is a leader. And it wasn't John Boehner, by the way, it was Urban Meyer, the head coach of the Ohio State football team. And I said, "Tom is going to have this investor conference today and we will meet a lot of people who weren't Buckeyes, and I was looking for some coaching from the coach." And then he said, "We remember last year, before the investor conference, you called me up and we were 6 and 0, and I was nervous and you were nervous about the back half of the year and we ended up unbeaten." And he said, "How did you do?" And I said, "Well, pretty damn good, on a relative term, we would have been in the same place. You're a football coach and we're retailers." And I said, "Well, what's your advice today, not understanding how mucked up the world is?" And he said, "Well, we're 6 and 0 again." And I said, "Well, how does the future look?" And he said, "This week, we're playing Iowa. We hope to kick their ass. And if everything works out, maybe we'll get to the national championship game."

And that's about how I feel in a very grounded way. We have a very good business. I think business is remarkably good, considering all the static. I think our year will be good, perhaps very good, unless Washington completely mucks everything up. And we're worried about making the week, making the month, making and having the best possible season. And that's just how we think about it, the stuff that's out of our control is out of our control. We're not immune to it. We're aware of it, and we work at the business of the business and focus on the things that we can influence.

I think today, in terms of understanding what we're trying to communicate, I think whether it's from the financial metrics, the comments that I make about the business, we're in very sound position, we think. And we've been working very diligently for weeks and months and years to get to the place we are.

And if the metaphor is football, Ohio State wants to win the national championship. And when it comes to financial performance against the largest international specialty retailers, that's the league we compete in. And so we -- you'll see it as you haven't seen before, that's the measure we put ourselves to do. So it's sustained performance at a very high level, and believing that we have unique skills and proven abilities and the talent to get us there.

And on this foundation of these unique brands, unique skills, wonderfully gifted people, not only can we double the business in North America, but we can look to sustain a significant international growth.

So that's -- those would be the headlines. Our brands are unique. And If I could underscore and say it again and again, our brands are unique. We are not apparel retailers. We are in the retail business, we're in the direct channel business, we do business in North America and we do business in the rest of the world, but we're not like apparel retailers. We have stores as does Apple and others, but we're not apparel retailers. We sell lingerie, we sell beauty, those brands have very different characteristics, high emotional content and when executed well, enormous customer loyalty.

In the Lingerie segment, the obvious lead globally is Victoria's Secret, followed up by PINK, followed up by La Senza. Victoria, La Senza, PINK, those 3 brands are the largest lingerie brands in the world, and they have proven customer acceptance all over the world. We know that now.

The Beauty segment, the dominant business is Bath & Body. It alone would be the largest specialty beauty retailer in the world. Victoria's Secret beauty is sold virtually all over the world now, and we know that not only do we have positive perception of these brands, but proven profitability.

So the foundation of the business and the differences in our business competitively in terms of customer awareness, customer loyalty, the ability to execute on a national North American and International basis, is quite unique.

I think we have demonstrated and continued to work to build our brands and not to allow ourselves to have the brands eroded, not by outlet stores, not by abnormal promotion. We don't sale against ourselves. And because of the uniqueness of the brands, comparative pricing and shopping is very difficult. So to the degree that one can be insulated, we work to build our brands, build customer loyalties and keep that differentiation, produces superior margins, superior financial metrics.

And both of these categories, it's really important to understand this, have, we think, the highest emotional content. And that emotional content, as part of the brands and part of the merchandise that we sell, is precious to us and obviously, precious to the customers.

We have, I think, very good skills, whether it's manufacturing sourcing skills, source skills, real estate skills, store design skills, design production, and we work those skills and integrate those skills, we think, as well as anyone in the world, and we do it fast. And we think we are a pacesetting facet across our best international competitors. And we love people talk about speed, we measure it, Stuart measures it, I measure it, we talk about it because it's essential to our gain.

And as I've mentioned before, the talent piece, people that have worked in the business that are capable, strong leaders in their own right, strong merchants and have high degrees of customer sensitivity. They kind of just know what tomorrow's news is going to be or tomorrow's events are going to be. It's nebulous, but it's very much like great filmmakers. Not only do they know how to make movies, but they make -- they know which movies to make that audiences will react to in a positive way and then create great box offices. So the talent piece of the business is important.

At the end of the day, or the end of the period this morning, hopefully, you will understand how we're seeing the future in terms of the challenge to maintain and improve the financial performance of the business and add significant growth. The foundation of stable performance, financial performance of the business, gives us the encouragement to get to the future faster. So we'll begin -- we're beginning to talk about growth, whether it's La Senza stores coming to the United States from Canada, additional square footage in Victoria's, square footage in Bath & Body, square footage in stores and PINK vetted in North America, then, of course, the rest of the world.

It's an interesting story because the pattern that we have followed is relatively unique. It's not a flagship pattern, but it was one of testing our brands in multiple geographies. And if you would -- where we know we were successful and where it was easiest, is strategic to expand pouring it on thick. So we're -- what you should get from our presentation is a clear understanding of where we've been, but now we're getting very focused on geographies of the world and where we can expand with the greatest certainty and the greatest opportunity.

So I hope I set the table for you. And at the end of the season, like Urban Meyer, I hope we come out with [indiscernible] at 12 and 0. Clearly, it's within our grasp.

Having said that, let me pass this over to Stuart, who will give you all the rational and important facts that you need to know. Stuart?

Stuart B. Burgdoerfer

Good morning. Guys, are you all right? Everybody energized? Got some good coffee, got some good energy? We're feeling good, we're getting ready to enter in the key time in our business, a lot of business done in the fourth quarter. And as I think about that and as I stand here this morning, I think we're well prepared and in a good position to have a good fourth quarter and holiday season.

The thing that I would want to convey to you before I start working through slides is probably a message of consistency. And hopefully, you don't find consistency to be boring, but it's consistency in thinking, consistency in our focus, and at least today, consistency in our results.

So you'll see some slides that are familiar, and some information that's familiar. There are a few things that are updated, but there really is a theme of consistency here, and I hope you find that to be positive. I certainly do. The story is a good one to tell, and there are, again, some new dimensions to it, but it really is overall a message of consistency.

So this is a chart with a lot of information on it, 3 columns, it's about shareholder returns. It's indicating return over 3-, 5- and 10-year periods. Our results are highlighted in pink, kind of a nice color for us, and the good news is, they're at or near the top of those charts.

And as I have commented on before, a lot of people -- how many people in the room have an interest in shareholder returns? Anybody have an interest in that? Okay. I know I do, and I sense many of you do as well. And so measuring this and using it both externally, but importantly, internally as well, is pretty powerful to us, and the results have been good.

And as you'll hear through the balance of presentations, mine and Martin's and more from Les, we are very optimistic about the growth potential for the business and our ability to continue to deliver very strong returns to shareholders.

Obviously, earnings improvement is fundamental to that. This is a nice chart, as I like to say it. Most charts you want to -- going up to the northeast, if you will, and certainly, this one, earnings per share does. The $3.21 is at the high end of the most recent guidance we put out in August, but a pretty consistent chart and a positive chart as we think about it.

Another important source of shareholder return is obviously the generation of cash and then the distribution of cash to our shareholders. We've talked consistently, I'll use that word a few times, consistently about using 3 methods to return cash to shareholders: the regular dividend, share repurchase activity and special dividends.

And I was going back through a lot of things to make sure I have everything straight in my head this morning, and importantly, our dividend has gone from $0.60 a share just a few years ago to $1.20 a share. Last year, we moved it up 20%, regular dividend up 20% from $1 to $1.20. That kind of rolls up to ton pretty fast, but a consistent increased growth in regular dividend is important to shareholders and an important source of return.

Special dividends, you're familiar with. You can see the number on the chart, paid out almost $4 billion in special dividends, $11 a share, a good, certain form of return as we like to say. We've talked to some shareholders that say, "We appreciate getting that check in the mail because there's no ambiguity about the return. You don't have to make assumptions about the P/E or the market generally or the future performance of the company, it's a check in your hand." And by the way, if you want to reinvest in our stock, you can do that, too.

And then the company has bought back a lot of shares, as you can see, nearly $8 billion of share repurchases in this time period at an average price of about $25. So a pretty good return on that, nearly $8 billion investment as well.

The company has talked a lot about our operating margin and our operating income rate. And you know the story, many of you do. Some here are new, and may be new to the story, new to our business. You'll remember that our company had an operating income rate of just below 8% in 2009, and we felt that we -- based on the quality of our business, our brands, our categories, et cetera, that we should clearly be at 15%. We announced that goal, we achieved that goal fundamentally a year early as I look at it. And you can see on a trailing 12-month basis here through the second quarter today, we're at 16.6%, so strong improvement in the operating income rate.

Many of you have probably also heard the expression that you don't take rate on to the bank, if you will. So in any business, there's a balance between dollars and rate, and that's not some weasel words by the CFO about, "Okay, he's getting soft about his belief in the opportunity for rate expansion." I'm not. But I also want you to know that we are very committed to delivering operating income dollar growth of at least 10% in any meaningful period. That's written down on the slide later in the document, I think. I've said that before, I'll say it again today. And importantly, that's how we measure ourselves internally. That's not just a nice statement for a group like this. That's how we think about and run the business. That's how we incent the management of the company, so that's a goal that we very much believe in and are focused on.

So how we improved our business? Over this period of time, a nice chart again, going northeast on the operating income rate, less common about the nature of the categories of retailing that we're in, I mean, in apparel and personal care and beauty.

You're familiar that Victoria's Secret and Bath & Body Works lead those categories. So great brands and a leadership position in great categories is fundamental to what drives our results. All that translates through the pricing power, customer loyalty, a lot of strong economics.

The middle of this page is consistent. There hasn't been any real change in this for several years. And again, that may be boring or boy, isn't there something new, but frankly, a focus on customers at the top of the list is pretty important in any business, and we are very focused on it. And it doesn't -- from that, I don't mean to suggest that we've got that completely nailed, we think there's greater opportunity through merchandising.

[Technical Difficulty]


Ladies and gentlemen, this is the operator. I apologize, but there will be a slight delay in today's conference. Please hold, and the conference will begin momentarily. Thank you for your patience.

Stuart B. Burgdoerfer

We're not losing our focus on that at all, okay? So the management of inventory, which is about balancing, about balancing, being in stock, the #1 dissatisfier in any retail business is being out of stock from a customer's point of view, okay?

So the focus on inventory, the balancing of inventory, the discipline around inventory is a very key focus for me personally and for the leaders of the business. Where we have made investments, it's in core categories, back to that growth of the core. Things like bras and panties, and where we've made those investments, we're seeing results, we're seeing payoff, are related to those investments. So just to clear that one really directly and early in this conversation, the management team, myself, specifically, continuing to be very, very focused on managing inventory in a disciplined way. But we're not looking to maximize return and be out of stock either, we're not stupid. When you're selling stuff that's got a 70% margin, being out of stock is not too smart. So again, that's around balancing.

The priorities around speed and reading and reacting and chasing we've talked about, I'll give you a bit of an update on that story. Selling, we'll talk about and you'll be the judge of it, but we do have an experience in a line management team. The thing that I would want to convey to you that's very hard for you to assess from the outside in is this notion of alignment. Or said in another way, are we all in the same page? And that doesn't mean that we're robots and we're all exactly the same, it's important to have some diversity in thinking, obviously. But when a company's management isn't on the same page, it's at tough place to be. And in my soon-to-be 30 years of business experience, I've been in situations where the management is not on the same page. And I can tell you standing here today that the management of our company, leadership of the company is on the same page about why we're winning, what our growth opportunities are, what we should be focused on. Very hard for you to judge, but a very fundamental thing in the success of the business.

Inventory slower than sales. This is a chart that runs through Q2. Our inventories, as we most recently reported them, are growing a bit faster than sales. But again, I already commented on that, and the growth really related to core categories. About half of the growth relates to the Body by Victoria relaunch and carry over to January, the Signature Collection relaunch, and then an investment in an incremental bra launch for Victoria's Secret.

All those things I just described, are those in adjacent categories or core categories? Those are in core categories, and again, seeing good results related to all those activities.

Growing expenses slower than sales. So sometimes I think these line charts get a little boring, so I wanted to make it interesting. And to me, $539 million is interesting. So being disciplined about expenses, drawing them slower than sales, not cutting expenses that relate to the customer, by the way, but cutting expenses and really forcing trade-off and expenses that aren't customer-facing, has been a big part of what we've been doing over the last 5 or 6 years, and that mind set and that focus continues.

Metaphor we've used in our business, consistent thinking, by the way. Many of you heard it before, and let's see how many people can finish the sentence when I say it. The mismanagement of inventory will make you sick, the mismanagement of real estate will...

Yes. So it's coming through, the consistency is coming through, it's good. So this pie chart looks pretty good, right? 99% of our stores is cash flow positive, it's been the case for a while. What does that reflect? Did you say, wow, it's interesting. But that says that our real estate is in great locations, that says our real estate is highly productive, that says that we don't have a looming problem of irrelevant locations. I get asked a lot of questions about what's going on with malls and are malls going to become irrelevant and so on. This measure would tell you that malls are pretty well, 99% of our stores is cash flow positive.

And so the management, the effective management of real estate by the real estate team themselves, by the brand leaders delivering great experiences to customers in our stores, come through in this graph.

The management of capital structure, of our financial structure, important to our business, important to any company. You'll notice the theme around consistency, so if you look to the middle of this chart and you look at 2 circled numbers and the numbers that go across, you would see a relative consistency that we're comfortable with leverage, adjusted for leases in the mid-3s, okay?

Last week, we closed on the transaction day, we'll get our money today, try to figure out to make sure we put it in the right place, given the concerns about U.S. Treasuries. But we did a $500 million financing last week, and we did that because we've got a maturity in November of 2014, $213 million, and we have capacity for additional debt. And by the way, the financing that we've got is at about 3.5% after tax.

So how many folks in the room think if you can within reason get financing for 3.5% that, that's a good thing to do? Everybody thinks that's a good thing to do? Show your hands. Seems like a good thing to do within reason, right? Just because something is good, doesn't mean you should do too much of it, which gets back to the leverage view. And again, we're very comfortable with the leverage that we have, we're very comfortable with the maturity profile of the business. This financing is very efficient, and really proactively manages our overall cost to capital.

The composition -- just for those that may be newer to our business, the composition of that leverage, you'll see on this page, has changed a lot over the period of time. So you'll notice in 2000, we had $400 million of balance sheet debt, not very much. You'll notice that we had $5.7 billion of capitalized lease obligations. And then if you go all the way to the right on that page, you'll see obviously the balance sheet debt has gone up pretty meaningfully, from $400 million to $5 billion. But you'll also see that the lease-related leverage has come down. And why is that? Because we had a lot of square footage and lease obligation related to businesses like Lerner and Lane Bryant, Limited Stores and Structure and Express, businesses that had a lot of lease-related leverage and frankly didn't generate a lot of profit. And that's why we got out of those businesses, okay?

And you can also see on the chart that our EBITDA, our cash profitability for this purpose, has gone from $1.8 billion to $2.8 billion. So that's how the leverage has evolved over time.

This is a reference page that we look at, and not only thing that we look at, but it provides some perspective about leverage in the retail industry. Our friends at Bank of America were kind enough to help us with this, and we've got permission to use it. And what it would show you is on the left side of the page, that companies that have gone through LBOs are highly leveraged transactions, have leverage in the 6x zip code, and that there are other companies in the middle of the page that frankly don't have any balance sheet leverage, but have a lot of lease-related leverage and not a lot of profitability, and so that gets them into the 3 issue zone.

And so anyway, as we look at this, we're very comfortable we're in a median or kind of a balanced place as it relates to leverage, and again, just some external perspective on leverage.

Consistency of cash flow. So operating cash flow on this page, very fundamental measure in our business. As I looked at this again this morning, thinking about what I was going to say and how I was going to say it. Generating operating cash of $1.3 billion, $1.4 billion, $1.5 billion, pretty consistent over this time period, very important.

I'll talk about this at some length as we go forward, but the CapEx has increased pretty meaningfully over this period of time. You'll remember in 2009, we pulled -- it's not a number on the page, we pulled our CapEx down to $202 million. What is consistent about our CapEx is we measure the returns very consistently. And if we're getting good returns, which we are, and again, I'll talk about that more in a minute, we're going to invest as we should. And if the world is coming apart as it was in late '08 and '09, we are able to pull back and we will pull back if it's a function of things going on in the environment generally or about our performance specifically. We monitor this, I monitor this very closely. Our board looks at this, at least once a year. How are we doing? How are those investments looking? What kind of returns are you getting? So that consistency and approach, that consistency and discipline around CapEx, pretty important. We've talked about the regular dividend, and the consistency there has been growing at -- in line or slightly ahead of the growth in earnings.

So let's switch to more forward-looking step, that's largely about what we've done. Let's talk about -- more about where we're going. We've talked about global retailers that we admire and respect, Inditex and H&M and Fast Retailing. If you look at this page back in 2008, 2009 when we were generating an operating income rate of about 8%, we weren't focused on these guys, frankly, because we weren't even in their league. To use -- to continue with Les' football metaphor, if you're third in the big 10, you're not thinking about national championships, right?

Well, we think we're competing more at a global leadership level based on the improvement in our business over the last 4 or 5 years, and you know that we think about this, again, metaphorically, as kind of the retail olympics. And again, apart from this being a nice way to talk about our business externally, frankly, what's more important to me is we talk about our business this way internally.

So one of the most important things in any business is to have aggressive goals and some logic and basis for those aggressive goals. And as we've looked at Inditex's business and H&M's business over a 5- or 6-year period, they went from about a $10 billion or $11 billion business, sounds familiar, that number, $10 billion or $11 billion, to about a $20 billion business over a 5- or 6-year period and had operating income rates in the high teens.

And we believe that's our opportunity. That's our opportunity. And again, that's not just the CFO standing up here today telling you that. That's a discussion with a lot of detail behind it within the business about what our potential is.

So how are we going to do that? Again, consistent thinking here and focus from a year ago. Les spoke about our brands, I've referenced the importance in the quality of the categories and the brands, and it really does start with that. Our focus on speed, I'll talk about a bit more, there's a slide on each of these that follows about store selling and execution, about square footage growth, and I think some people don't fully appreciate this. I find -- and it's okay, but to be clear, we have a great direct business. Our primary focus is around stores because that's where we best deliver customer experiences, store designs, store layout, experience with associates, et cetera. It's a 3D experience, if you will.

And so our focus is stores, but we have a great direct business. Victoria's Secret is a $1.5 billion direct business that generates over 20% operating income rate. And quietly, Bath & Body Works has created an online business that is approaching $250 million, also had an operating income rate well north of 20%, meaningfully north of 20%. So we're very much participating in that channel and have good growth in that business.

Our focus on speed and agility is an important one. Les talked about the fact that he measures it, that I measure it, and we do. It's a very hard thing in a setting like this to generalize about it because I think -- the smart folks in the room, you recognize that lead times vary a lot based on the category of business that you're talking about, based on whether it's new item or replenishment of an existing item. What we can say to you is that we've reduced our lead times by a bit over 50%, and we believe that there's a similar opportunity going forward.

We've talked with you in the past about the fact that we can go from order to store with respect to panties at Victoria's Secret, at PINK, at La Senza, in 13 or 14 days.

So how are we going to get that additional 50% as it relates to the ordering and flow of panties? It's not about going from 13 to 14 days to 7, it's about how do you get more of the business on that short cycle. And that's really where our focus is, and the same thinking would apply to bras and personal care and beauty.

All of these, it's not just about, "Okay, we're fast." The point of it is, if you got more information about what's selling and what's not, if you don't have to commit as much upfront in your initial order, that additional information gives you much better odds of getting it right and selling it at a full price. All of us in this room, if we had a 1 day lead time, we could be master merchants even being kind of like me, you could probably be a pretty good merchant. Because if I can look and see what sold yesterday, literally, what sold yesterday, styles, colors, choices, and I can flow those goods back in, in a single day, I thought I'd get it pretty right because all I got to do is read the report, right?

And so that's the power of reducing those lead times because our merchants, our planners, our business has better information to flow the right product to the customers. That's the concept, more full price selling, a reduction in markdowns.

One measure of speed that is certainly one that you can aggregate and share publicly is inventory turn. Again, if this was 6x and we're out of stock, that wouldn't be very good, right? So like most things, there isn't one instrument on the dashboard of an airplane, right? There's more than one instrument, so you got to look at 4, 5 things. But again, as a measure of inventory productivity, reduction in lead times, certainly, inventory turn is one important measure related to that, but it's about being balanced.

You've seen this chart before, we've updated it. Another way to think about the productivity and the effect of speed is growing sales $2.4 billion, growing operating income over $1 billion and doing all that with $128 million less of inventory. And that chart still blows me away. And we still got -- there's more of that to come and we're very focused on them.

Store selling and execution. So there's a very substantial opportunity as we think about it in our business, a little risky for me to do, but I'll tell you what I really think. I think that there's a -- and I'm going to give a wide range here, but in terms of the potential sales growth related to improving our store selling in our business, I think there's a 5, a 10, a 15, maybe a 20 at the stretch for the whole company sales growth opportunity related to more effective selling.

Now you might think, "Oh my God, the CFO has gone crazy, he's throwing up big numbers there. Aren't these guys pretty good at this. They've been in retailing for 50 years. What he's talking about?" But what it really is, as we've looked at the results of our work in key markets, what we've called market intensification, a project that began for us for Victoria's in 2009 in a particular market. And through that work, we've set ambitious goals and we upgraded the talent in our stores, and we improved the training and we worked in the part-time, full-time mix and we worked on the flow of inventory and made sure the real estate was right and the flow of the stories are right. All those things that are about selling and execution at the store level. On the same number of doors, roundly 30 doors in Chicago, on a trailing basis, meaning there's no projection in this number that I'm going to you, we've increased the business more than 70%, and that's very substantial through running better stores, okay?

And so when you think about that in a particular market and as we think about the opportunity more broadly over a 3- or 4-year period, we believe there's a lot of sales growth through selling more effectively. You can see the drivers on the page.

Square footage growth. Important -- how many people here have a model about Limited Brands? Anybody have a financial model? You got to plug something in for square footage growth, right? Pretty hard to do a model without that, so an update on our thinking there. There's an opportunity to productively add space to ensure that more of our stores have the full lingerie assortment. Victoria's is a lingerie company and maybe shockingly of roundly 1,050 doors, more than 875, you can read it on the page, don't carry the full lingerie assortment. And when we add square footage related to lingerie, we get good sales growth.

We've talked about the opportunity with PINK previously to update you on that. 725 stores do not have the full PINK assortment, and a page is coming about how the expansions are doing and how the freestanding PINK stores are doing. They're doing very, very well. And we need space related to adjacent categories, sports and loungewear and swimwear. It's a good-looking picture, that's a remodeled and expanded Victoria's Secret store in Chicago.

So how have these expansions done? I've been asked maybe once or twice, we expanded square footage in 2006, 2007, 2008, was that good or was that bad? And we gave an update about this last year, we've rolled forward the numbers another year, we've added in the 2012 activity. So how have these stores done? And you can read the chart faster than I can say it. Sales are up about 50%, productivity very high at $800 a foot and the investment return, as we measure it, is about 30%, and that's why we're doing a lot of that activity, investing a lot in that business. And from that, in addition to the positive financial metrics, you got a great-looking store, setup well for the next 10 years as you move forward in your business.

One of the worst things that can happen to a retail or a multiunit business is not investing in a store fleet because you get behind. And if you get behind, 10, 15, 20 years, then suddenly you have a huge deferred CapEx. And the good news for us is that through a combination of merchandising ideas and the opportunity and store selling that I talked about before, when we expand space, we're getting paid for it. And so we get good financial outcomes and we have a great-looking store setup well for the next 10 years.

Good-looking stores, PINK freestanding stores in Connecticut. So how are these PINK freestandings doing? So we measured 36 of them through the first quarter of '13. As you can see on the page, these are the ones that have been updated and measured. That's how we get to 36, okay? Eye-popping number on this page, $1,300 a foot. That sounds like good productivity in retailing? Tom, is it a pretty good number? Good number?

About 3,200 selling feet, very important. The third bullet on this page frankly is surprising to me and surprising in a good way, okay, and very important to keep our eye on. And that is, when we open at PINK freestanding store, how does the original Victoria's Secret do? So you're taking the PINK volume out, right? Opening a Pink freestanding store, what happens to the sales in the original store?

And as you can see on the third bullet, and I reviewed this and reviewed this and reviewed this, and the numbers are very consistent. And basically, we're holding the volume, meaning we're pulling that business out and we're growing the lingerie business and growing the beauty business in a way that we're fully replacing, basically immediately, that PINK volume and picking up all the PINK volume. And that's a great outcome and really speaks to the need for more square footage and the opportunity to add square footage and get really good productivity through that investment. Again, the return is very good at about 30%.

Square footage growth. So you need a number for your model. What's the number? So as we look at 2013 and 2014, you can see what's on the page here. We've laid this out for North America, okay, and Victoria's Secret in the top section of the chart and then 4 Limited Brands in total, bottom section of the chart, and again, you can see net of closures of 5% and 3%, respectively, before closures, 6% and 4%, so good square footage growth. That's spread between comp and total sales growth, that incremental growth is becoming important in our business. As you look at our monthly results, as you look at our quarterly results, we're trying to make sure that just in the basics of the release and the script, that we're putting the appropriate highlight on total sales growth. Because for us, we do have the opportunity and we're getting good results from that square footage growth.

CapEx. So we turned the chart on its side. It's my creativity, that's about as good as it gets for me. But this lays out CapEx from '08 to '13. You're, I think, generally familiar with the numbers. I've recount this on the way up here yesterday. As we look at '14, and we haven't finalized our '14 plans. But our '14 CapEx will be roundly in the same -- at the same level as '13 CapEx, and what I was calculating as the percent of the CapEx in '14 that will be invested in our stores. And it's about 75%. So in my general rule of thumb in retail and true for most retailers, it's about 70%. But as I was looking at the numbers yesterday coming up, it's about 75%. And that's where our money should go, and that's where our customers are. And again, based on the returns that I just reviewed with you, you would expect us to be investing.

So you can see the ROIC results to the far right side of this chart, and those numbers have been going up based on the quality of investments and based on the overall performance of the business.

So I'm going to summarize, and sometimes build charts can be a little annoying. But I do want to make sure we stop and pause, and I comment on each of these because they are fundamental points. So global category-leading brands, emotional content, great categories, Les said it, we're not in the apparel business. One of the things that I have done with some intended humor is in the apparel business, generally, off the top of my head, I can come up with 4 companies just starting with the letter A in terms of how crowded that space is. And so we're not in that space. We're in the intimate apparel and personal care and beauty space, and we have the leading brands, the leading businesses in that space. And those businesses have a lot of emotional content that drives pricing power, that drives profit, that drives cash flow.

We believe that there's a lot of growth in North America. We believe that, that will come through growth in core categories. We believe that, that will come through growth in adjacent categories, and I share with you my thinking about the growth potential related to further improving our selling effectiveness and the execution of the business at the store level. So we believe a very substantial growth opportunity in North America.

Martin Waters is going to come talk about it and give you a good update on international. But I'm very energized about international. I'm more energized about North America just because it's bigger, but I am also very energized about our international potential. And it's a very substantial one, and it's one where the operating income rate as it scales and matures will be accretive to, which means higher than -- it's fancy word for higher than the overall company average. So a very, very big opportunity there.

I'm reiterating here about the opportunity about improving our operating income rate. Our commitment to grow operating income dollars 10% or better in any meaningful period remains very clear, and we're very focused on that. And that focus is not just because we want to pick a high number and a tough number, it's because what we believe our potential is based on the quality of our business.

Cash and liquidity, obviously, very important to any business, very important to us. I think we've been very consistent about it, actually. We believe that debt in our capital structure is a good thing, given the relative cost to debt, particularly, in recent times, and our focus on minimizing our cost of capital is one that any large organization, any public company should have.

The management of inventory, expenses and capital, there's a lot of discipline in those areas, a lot of time spent by me and, frankly, as importantly or really more importantly, by our leaders to manage those things. No one person runs a business, a team runs a business. But you shouldn't conclude from that, that I'm not focused on it. I'm very focused on it. And those disciplines have paid off for us over the last 4 or 5 years, and they're very fundamental as we look forward to -- as we work towards the future and continue to run our business.

And then lastly, the generation of cash, which we've talked about, and the return of that cash to shareholders is an important contributor to those shareholder returns, again, that we're very focused on, and that mindset continues. I mean, it's, to me, very helpful to have the gentleman that runs our business, Les, as the most significant shareholder. I've told this story in smaller groups. When I first came to the company, has a bright shiny MBA, I thought I was really smart, blah, blah, blah, and I come to talk to Les about some shareholder value, EVA concept. And he kind of looked over his glasses and he said, "I understand shareholder value." So he does, and I felt like I was about this tall. But when you've got a stake in the business like he does, there's no ambiguity about shareholder interest and shareholder value.

So with that, I'll end on this slide. It's a good chart. I recognize it's backward looking as we think about the future, very strong belief in our growth potential and our ability to continue to generate very, very strong returns for shareholders.

So thank you. We're going to call up Martin Waters. He's got a much better accent and more entertaining than I am. He's a great partner to work with. So he'll update us on international, and then I think we may take a break.

Martin Waters

Good morning, guys. How are you? Well, for those of you that don't know me, my name is Martin Waters. I am lucky enough to lead the international team here at Limited Brands, and what a privilege it is to follow a world class CFO like Stuart.

So I'm going to be up here for about 25 minutes, and I intend to tell you a little bit about what we've been doing over the last few years in international. And in doing so, I'll frame my remarks about -- around the following agenda. So I'm going to tell you what we've been doing, what we've been testing, how we've been thinking about the business. And then, I want to focus a little bit on geographical focus. So I'm going to address the questions: So where do we go next? What do we do with all of these data that we've got? And where do we take it?

And then, I'll talk a little bit about how we want to run the international business, and what that's really about is our operating model.

And when all of that is said and done, maybe we'll spend a few minutes looking forward to 2014 and beyond and give you some insight into how we're thinking about the future. So that is the plan.

Before I get going, I should start with the disclaimer, the health warning, and it's the same disclaimer that I use in any presentation that I give about international, whether it's inside the company or outside the company. And that is that our absolute priority is growing the domestic business. Our intent, as you've heard from Les and from Stuart, is to double the domestic business.

And we defend against the distraction -- the potential distraction of international by operating separate and dedicated teams that are out with the main business of the business in North America.

We don't bet the farm. We're very, very careful on the particle we test, and we learn before we roll. But when we're sure that we're winning, when we've got the formula right, boy, are we fast and are we focused. And I think that really is at the heart of the DNA of this company.

So with that said, let's focus a little bit on what we've been doing. So I think over the last 3 or 4 years, we've built what I would describe as a really solid foundation around 3 brands and 4 retail concepts that, at the end of this year, we'll deliver about $1.6 billion in retail sales from something in the order of 870 stores.

And I'm going to walk you through each of these businesses now. So let's start with Victoria's Secret, which I like to tee up with the notion of 1 brand, 2 formats. And I'll talk about each of the formats.

So let's start with our full assortment business, which is the one that you'll be most familiar with here in the U.S. And our journey on the full assortment store has begun 3 years ago, almost to the day with our first store outside of the U.S.A., in Toronto, in Canada. We had great success. We had an amazing time.

So we moved very quickly. And over the course of the last 3 years, we have now built a real estate portfolio of 24 full assortment stores, all in AAA locations throughout Canada. And that, combined with 10 freestanding PINK stores, is delivering retail sales in excess of $250 million.

From an outstanding start 3 years ago to over $250 million worth of retail sales, with economics that are substantially similar to those that we see in the U.S.A. And it's that kind of track record of delivery on return on capital employed that gives us the confidence to say, "We should keep building in Canada."

So you can expect us to open between 6 and 8 more mall-based stores in Canada over the next 12 months.

I want to play you a little video, which we took recently at the opening of a store on Robson Street, Vancouver. And if my read of this video is like yours, I think you'll get the sense that there's tremendous advocacy for the VS brands. So please, can we roll the video.


Martin Waters

Pretty cool, right? This is a replication model. It's the same merchandise that we have in the U.S. following the same cadence of floor sets, same merchandise, same pricing strategy. It's a replication.

Let's turn now to the U.K. And some of you might recall that just a little over a year ago, 13 months ago, we opened our first 2 stores in the U.K., one on Bond Street and one in Stratford, adjacent to the Olympic Village, both incredibly successful, and we moved quickly to say, "Let's acquire more real estate in the U.K. and see if we can build out the business."

So we are very strategic about choosing the next 3 locations for the business, and we decided to go outside of London, to go north, to Manchester and Leighton, Sheffield, and to open stores in locations that are more typical of how a roll out picture across the U.K. might look. And we're very pleased with the results. We're about 2 or 3 months into these 3 stores, but already, while it's early days, the indications are so strong that we are committed to opening another 5 or 6 stores in 2014.

So we're starting to build a pipeline of real estate that really gives us momentum to build out in the U.K.

Similar story in the Middle East and Turkey. That's the geography that we operate with Alshaya, where again just about a year ago, we opened 3 stores, 2 in Dubai, 1 in Kuwait, amazing success. We committed very quickly to open more stores. We have a fourth store that opens next month in Dubai. And again, we have a pipeline of real estate opening through 2014 that will double the size of that business.

So these 2 businesses, 1 wholly-owned in the U.K., 1 franchise-operated, both are replication model, exactly the same format as we operate in the U.S., both delivering over $100 million in sales right now and very well-positioned to more than double during 2014.

One more video. This time from the North of England, and I hope you get a sense in watching this about what that replication really looks like. It's the same offer repeated wherever we go in the world. Please roll the tape.


Martin Waters

So hopefully, you could penetrate those regional accents enough to understand what was going on, amazing awareness of the brand and amazing advocacy and enthusiasm around the brand.

Let's turn now to the second format within Victoria's Secret, the VSBA format. And this is based on a belief that we have a family of truly world-class fragrances with an unstoppable flow of newness. And when we partner that with high-quality fashion right accessories in categories like small leather goods, cosmetic cases, scarves, sunglasses and so on and put that in an environment that's incredibly well-designed, a very brand-right environment, that you deliver something that's incredibly compelling with very high emotional content and ends up being a story incredibly well told.

Hopefully, you see through the slides that are on the screen now that there's real consistency in delivery of this business. It's a small format that's only 1,000 square feet in space. It's very easy to scale. It's very easy to replicate, and it's being delivered in a way that's truly consistent and tees up the master brand over time.

The slide on the -- the picture on the slide right now, I like particularly because it's a very creative use of space in one of the best airports in the world in Ataturk in Istanbul. And carving out in this space in small formats, again, like here in Changi in Singapore, allows us to access some of the most important airports in the world and, consequently, some of the opinion-forming customers around the world.

And the economics of this business are really terrific. By the end of this year, we'll have 200 stores like this opened. The journey only began 3 years ago. So when we have a winning formula, we're fast and we're focused.

And the average sales per door is about $1.6 million, 0 capital invested on our behalf. We start making money as soon as these stores open.

And our judgment is that for 2014, we can open at least that many. So we're planning for something in the order of 100, 125 stores in 2014. And very importantly, if all goes to plan, we're putting ourselves in a position to be able to test in Mainland China, test the VSBA concept in Mainland China in fall 2014.

I'm thinking 10 or 12 stores on the Mainland about a year from now, and we're doing everything that's necessary to put ourselves in a position to do that.

Now one of the reasons we get confidence to do that is our launch in Hong Kong. So within the last quarter, we opened 3 stores in Hong Kong in deliberately diverse locations, one in the most affluent tourist location, another in a very mass environment, right on the border of the New Territories in Mainland China, which is predominantly shopped by Mainland Chinese, and the results are spectacular.

I want to share a little video of our opening in Hong Kong and see if you get the same sense.


Martin Waters

So the words that spring to my mind when I see that: energy, enthusiasm, excitement, consistency, the same delivery on brand execution.

Let's turn now to our third business, Bath & Body Works. So our Bath & Body Works journey began 4 years ago with the first stores opening -- 5 pilot stores opening in and around Toronto, amazing success.

Again, we moved quickly when we knew that we had a winning formula to build out that business. So over the last 4 years, we built the business to 78 stores with annualized retail sales in excess of $200 million, easily a market-leading position, and again, economics that are substantially similar to those that we see in the U.S.A.

And the journey isn't finished in Canada. We think that there are probably between 10 or 12 more stores to open in 2014, again, all in prime site locations, best malls in and around Canada.

An excellent execution of the brand. This is a store that we opened recently, and it could be any store in the world. When I look at these pictures, I see the same floor sets delivered in the same cadence and the same way with the same conviction that there is in every Bath & Body Works around the world.

And the same is true when we turn outside of North America. This journey began 2.5 years ago with our first store in Kuwait. Who would have thought that Bath & Body Works would be a big hit in Kuwait? Well, apparently it is. It's our #2 store in the world, and the same pattern has revealed itself in Dubai, in Turkey and in other places where we've tested the brand.

So by the end of this year, we'll be up to 58 stores for Bath & Body Works with outstanding store execution.

This picture happens to be Dubai, but it could be anywhere, and again, real conviction and consistency of delivery wherever the brand appears around the world.

And that takes us to a belief that in 2014, we'll probably add between 30 and 40, 30 and 38 new stores. And within that group of stores, we will move to test Bath & Body Works in Asia. So we've made the decision that the markets in Singapore and Hong Kong are attractive. We want to see what the reaction is of the Chinese consumer. And our partner who currently operates the VSBA business is just terrific, and they will operate these stores for us. So that's ahead of us in 2014.

So let's turn now to our fourth business in international, which is La Senza, which, as those of you that have been on this journey with us will know, there has been a complete repositioning.

This business is not about a little bit of change, it's been about a total reinvention. It's been about saying goodbye to the old and redefining something new and focusing in on the core market in Canada and really looking to transform that business.

And the good news is that as we've been talking about gaining traction, that traction has continued. We now have the real estate portfolio right-sized at about 150, 156 stores. We got rid of all of the real estate that we didn't want.

We have annualized retail sales about the same size as Victoria's in Canada, $270 million. Importantly, we've had 9 consecutive months of positive comps.

More importantly, we have 12 consecutive months of positive comps in bras and panties, and that's about focus. It's about delivery of a lingerie concept. And that, of course, leads to good things at a profitability level.

We are currently operating at mid- to high-teens 4-wall, and we see a path to get well into the 20s.

And outside of Canada, the same pattern reveals itself, 355 stores internationally at the end of the year. The improved assortment that we have in Canada is then leading to improved performance, and we're really focusing our partners on building capability and on delivering a selling culture. If we can get the same level of selling culture that we have in our North American businesses into the La Senza International business, it will do wonderful things for our sales.

And importantly, we've made the decision that we've been talking about for a while to test La Senza in the United States.

So in Spring 2014, we'll open 5 or 6 stores at about 2,500 square feet in space each. We'll do it in malls that what we would call our meat and potato malls, the regular malls of the Midwest. We're not making a big splash in New York or L.A., we're going to open 5 or 6 stores in markets that we believe are typical of what a scale rollout might look like, and we'll see.

I want to play you a video of La Senza that -- recognizing that most of you don't see La Senza stores on a day-to-day basis, that gives some visual clues about the change and the transformation in the business, from being a family-ran operation in Canada that focused on sleepware and slippers to a serious lingerie chain that's focused on young, sexy, value positioning in lingerie.


Martin Waters

Transformation. So that's an update on what we've been doing. I think you would agree we were doing a lot, a lot of different activity, geographically very dispersed, and that's been our approach to testing. We've been mining for the right ideas.

Now it's about, so what do we do now? Where do we focus? And it starts with the belief that we do best with a concentration of force, that if we can concentrate on a small number of geographies, the few that produced the many, that we will deliver the best results.

So the way that we think about this is breaking the world up into 4 chunks. Chuck #1 is Canada, and our judgment is that the VS Canada business and the BBW Canada business are so similar to what we see in the U.S.A. that over time, we can think about them within a North American focus.

So those 2 businesses have absolutely benefited from the incubation of being positive international. But going forward over time, you can expect to hear us talk about Canada as part of North America.

So with that said, our 3 geographies outside of North America to focus on: First, the Middle East. We started in the Middle East because we believe we have the best partners in the world. We sell to the Middle East because we know that there's great advocacy around our brands. We already have over 200 stores up and running in that part of the world, and we can see potential over time to build out that focus, build out that geography to a business in the order of $2 billion.

So rather than spreading ourselves thinly all around the world, focus area #1 is the Middle East and Turkey.

Focus area #2 is the U.K. I talked about this a little earlier, moving from 2 stores to 5 stores to 12 stores. We're on a path to building out. We don't know exactly what the endgame number is, but we could believe it's in the order of 40 or 50 Victoria's Secret full assortment stores. And then, there's our other brands as well. So

by concentrating on a relatively tight geography, with about 60 million relatively affluent people in it, we can see a path to $1 billion business.

And the third focus area outside of North America is our emerging business in Southeast Asia. So we already have over 100 stores in markets like Singapore, Malaysia, Indonesia, Thailand, moving further north into Hong Kong, and we see a potential for all of our brands.

We have VSBA, we have La Senza, soon to have Bath & Body Works. And of course, it all leads to China. So even without China, I can see $1 billion business in that part of the world.

So if you accept that those 4 chunks are where we're going to focus most of our energy, we think that there's an incredible path to growth for us moving forward.

So that covers the what and the where. I want to focus a little bit now on how and talk about our operating model.

And those of you that have been with us for some time will have seen the chart that I'm going to show you now before, again, consistency. So about 3 years ago, we wrote down 6 principles that would govern the way in which we want to run the international business. It would be like the rules of the road. And at just about every meeting we have with our partners internationally or meetings we have internally, refer to these 6 principles. Let's run through them really quickly.

It begins with the notion that our international business outside of North America will be primarily a partnership-based model, that means a franchise model. And unlike some other people that internationalize, our belief is that we want a small number of truly world-class partners. So we could choose to have 1 partner for every brand in every country and optimize at a country level. I don't think that's the right way. If we could cover the world with 6 partners, that's what we would do, and we've developed really deep meaningful relationships with those partners.

Principles 3 and 4 govern who does work in our relationship. So principle #3, we, at Limited Brands, want to control everything to do with what the customers see. So the assortment, the pricing, the replenishment, the decoration of the stores, the training materials, the uniform of the store associates, everything that the customer sees, the approval of real estate, that's what we do. That's our contribution to the partnership.

What we ask our partners to do is really incredibly simple, it's just 3 things: One, bring money. It's their capital, not ours. Two, real estate risk. We'll approve the real estate, but it's their risk over time on those leases. And thirdly, the management of people, their language, their local laws, their regulations. Those are the 3 things we ask our partners to do, and we try not to muddy the waters between those.

So essentially, what we end up with is a very, very high control model. And the way we seek to get paid in that model is through a royalty on retail sales, and you've heard about me talk about this before. Our belief is that we should be most fascinated with retail sales, with that moment when the customer says, "I'll take it." We should be most fascinated with building healthy retail businesses that have lean inventories. And as such, we don't seek to make money on the sales side in the old wholesale model, we want to make money out of a retail royalty.

And finally, principle #6, wherever we go in the world, we think it's important that we have our people there. This is not a hands-off partnership, where we leave the good people out there to get on with it. We want to be in it with them, coaching, training, escalating issues, expediting solutions.

So the way I'd describe this model is that it's an absolutely intrinsic partnership, that the roles and responsibilities are clearly defined. And we only work with people who are determined to work in the same way as we do.

Two other things to say about the half. Our focus absolutely mirrors that of the North American business in that we are maniacally focused on speed. It's about following the same cadence of merchandise flow that we have in North America. That means open to buy limited initial allocation and chase, chase, chase in season agility, read and react.

And secondly, it's about focusing on the customer experience through having a very high quality store environment and great real estate, talent and training and building and selling culture.

So that's the how of how we want to go about running the international business.

In conclusion, a couple of slides, I would say. Look ahead before we get to the conclusion. Looking ahead to what Les means in terms of growth for us going forward, 2 slides, 1 word and 1 number.

Let's start with the word. So we've written down here the 7 priorities that we are focused on in the coming few years. It begins, as you would expect, with doubling the North American business, that's where everything begins.

As I said, integrating the Victoria's Secret and Bath & Body Works businesses into Canada over time, not tomorrow, but over time, thinking about those 2 together.

Beneath that, outside of North America, the main work is repositioning La Senza, continuing the good work that we're on with in Canada and the rest of the world and testing in the U.S.A.

It's then about really mastering the delivery of our brands in those focus geographies, the Middle East, Turkey, United Kingdom, Southeast Asia.

Principle #6 is moving to scale on that relatively simple business that I described, VSBA, Victoria's Secret Beauty and Accessories, moving that globally at pace.

And then finally, beginning to learn our way in China, beginning to put down some baby steps at very low risk with 0 capital, to give us indications of what we might be able to do in what will probably be the biggest market in the planet at some point in the future.

So if I think about that in numerical terms, we feel comfortable with a rate of expansion that's about 25% or 30% more stores per year.

So going from where we are at the end of this year at 870 to something north of 1,000 with another 200 stores or so. And we deliberately remain flexible in this approach. We're not committing to real estate over multi-year periods, we're keeping the decision point as close as possible. But if all goes to plan, we could imagine getting to something above 1,000 stores towards the fall of 2014.

So that's the major trajectory, and you've got this detail in your pack to study.

By way of conclusion, 2 slides. The first is geographically, primary focus is doubling North America. Internationally, in the near term, it's about the U.K., Middle East, Turkey and Asia.

And the 4 overarching points of emphasis is the belief that the North American business is our foundation. It all starts from a solid foundation, that our model is a replication model, what works here works there, what's popular there is popular here. And that the best results will come from geographical focus, tempting as it is to plant flags all over the world, we don't think it's a good idea, concentrate on the few geographies that produce the many.

And finally, the determination to operate a high control model. It's virtually the same as owning the entire fleet ourselves, but with a significantly lower risk profile and a significantly higher expertise profile at a local level.

So that's my update on international. I think we have time to do Q&A now before coffee. So Stuart is going to join me on stage, and we'll be happy to take questions on the overall business or, indeed, about international. And there are some mics that are coming around to helps us with that.

Question-and-Answer Session

Amie Preston

[indiscernible] If could ask you to wait for the microphone so that people on the webcast can hear the question. And I also want to remind everybody that's on the webcast that you can ask questions as well. So why don't we start with Roxanne?

Roxanne Meyer - UBS Investment Bank, Research Division

I've got actually -- I have 2 questions, one for Martin. Just wondering if you can elaborate what it means to integrate Canada into the North American business? I know you brought some of your merchant talent already over here, so what that means. And then for Stuart, as far as the market intensification program, obviously, highly successful, and you mentioned that Chicago has seen 70% increase in sales. Just wondering if you can share what the 4 walls -- what the 4-wall of the stores look like at this point as well.

Martin Waters

So maybe I'll go first. So I think what it means is that the flow of merchandise is managed by the master brand, but we think about Canada as being a geography that's part of the U.S.A., just flatly further north. We can drive through all of those stores from Columbus, Ohio. So we think about them in exactly the same way from a merchandise, from a flow, from a promotional point of view and from a leadership of talent point of view. So I think it's a relatively straightforward transition. What it buys us, of course, is the opportunity for even more focus on international. So my team would have more time, more resource available to focus on really high delivery elsewhere in the world.

Stuart B. Burgdoerfer

The 4-wall profit related to the market intensification, the dollar growth has been substantially in line with the growth in sales. The rate -- there hasn't been a lot of rate expansion because we've invested more in-store selling cost and other related costs, but the dollar growth has been very good.

Amie Preston

Great, thanks. Tom?

Thomas A. Filandro - Susquehanna Financial Group, LLLP, Research Division

Stuart, more for you, I guess, than Martin on this question. You tied to that great success with the VSX full collection, I think, at about 100 stores. You've kind of put in VS Sport into, I think, another 300 stores. Curious how that's performing, and when will you guys make a more aggressive move to get into that market niche. And Martin, just quickly, if you can just update us, it sounds like the assortments internationally are similar. How about the pricing structure?

Stuart B. Burgdoerfer

So on the sport business, we have seen very good success there. And I think, Tom, there was a little bit of buzz about this either yesterday or today. We're rolling a more expansive sport assortment to all stores, and so that's the incremental bra launch that we've been talking about. So we're upbeat about that category. We believe that there's a very substantial business to be done. We do that from our expertise and leadership position in bras, so it starts with a bra focus. But we believe there's a very substantial opportunity there, and we're getting more aggressive about that opportunity literally as we speak with incremental activity happening here in October related to sport in all stores. So I'm very bullish about that business over time. But again, our primary focus is around bras and panties and the core of the business and sports an adjacent category and coming at it from a broad point of view.

Martin Waters

Yes. A couple of things on pricing, Tom. The first is that coming from a successful base of operations in the U.S.A is incredibly helpful from a pricing point of view because the U.S. is just about the lowest priced developed market in the world. So almost everywhere we go around the world, there is up pricing, which is very helpful to the economics. Second thing is our judgment is that the world is getting flatter. You won't be surprised about that. Customers know what's going on around the world. And I think the old days where you could charge whatever you want to in a given market and just expect to get away with it, I think that's just gone. Insult pricing is a terrible idea. So we govern ourselves to the notion that we want price of more than 30% higher than the whole market. So I think if you're within a corridor of 25% to 30% when the customers have gone to the trouble of doing the exchange rates in local taxes, I think it's okay. Beyond that, not okay.

Oliver Chen - Citigroup Inc, Research Division

Oliver Chen from Citigroup. Last year, one of the learnings during the holiday was potentially not getting your fair share of traffic due to planned promotions. Could you update us on the incrementality this year going into that season? Also, regarding Henri Bendel, what's the plan there as a potential growth vehicle?

Stuart B. Burgdoerfer

So with respect to holiday plans, I mean, we do a rigorous hindsight of holiday. It's foundational to what we do. We've done that for a long time, and we look at what worked well and what our opportunities are. We did that after last holiday, and Sharen has commented about this particularly for VS. We walked away from last fourth quarter feeling like we could have done more, could have been more aggressive.

Martin Waters

Insult pricing is terrible idea. So we govern ourselves to the notion that we won't price more it than 30% higher than the whole market. So I think if you're within a corridor of 25% to 30%, when the customer's gone to the trouble of doing the exchange rates and local taxes, I think it's okay. Beyond that, not okay.

Albert Chen

Albert Chen from Citigroup. Last year, one of learnings during the holiday was potentially not getting your fair share of traffic due to planned promotions. Could you update us on the incrementality this year going into that season? Also, regarding Henri Bendel, what's the plan there as a potential growth vehicle?

Stuart B. Burgdoerfer

So with respect to holiday plans, I mean, we do a rigorous hindsight of holiday. It's foundational to what we do. We've done that for a long time, and we look at what worked well and what our opportunities are. We did that after last holiday, and Sharen has commented about this, particularly for VS. We walked away from last fourth quarter feeling like we could have done more, could have been more aggressive. And so not going to go into detail about those plans because you know who we are. We try to be careful in terms of competitive signaling and so on. But you should know that those plans are aggressive and that there are contingency plans. There's a plan B if plan A doesn't work out right. And one of the positives of having 1,050 doors in Victoria's case and 1,500 to 1,600 doors in Bath & Body Works' case is that we can and do test a lot of things. So I'm very optimistic about our holiday plans. I think our mindset is to be somewhat more aggressive. And again, we've commented about that, Sharen has commented about that in the marketplace and very, very good about having a good holiday. So I know that's general and vague and you might want to know specifically what are we going to do on x, y, z date, but we're not going to go into that detail at this time, but a good hindsight and feel very good about the plans.

Albert Chen

And Bendel?

Stuart B. Burgdoerfer

And sorry, yes, thank you. Bendel is in a great category. I mean, leather goods and accessories is a great category pedigree. I mean, some folks have probably paid attention, I know we have come to what Michael Kors has done in that category. So that's confirmation to us that the category is a very good category. The business was making progress in terms of sales and margin improvement. We've got 29 or 30 doors open. We're learning through that experience and making progress. So that's where we are. We're not spending a lot of time and energy on it, but we've got a team there that certainly is. And again, they're making progress on a great category.

Janet Kloppenburg

Janet Kloppenburg of JJK Research. Stuart, I wondered -- on the discussion about promotions, we've noticed that the PINK brand has become more promotional in this season. And I'm wondering if that's something -- it can't -- that can be managed or engineered while sustaining the margins that are so highly attractive in that business.

Stuart B. Burgdoerfer

Yes. The short answer to the question is it can be managed, Janet, and certainly over time. I mean, the PINK business is a great business. Importantly, and very important to know, that 50% of the business, 50% of the PINK business is bras and panties, okay? And people will ask about, "What's different? Is it just another teen business? How do you think about it?" I know those are thoughts that run through people's heads. But 50% of it is in our core, which is bras and panties, which is a great category which we have leadership position, a lot of technical capability, et cetera, and frankly through -- Les is pushing, really growing that part of the business at a very high rate to really distinguish PINK from a lot of other folks. The PINK apparel business over time has also been a very good business. In terms of some decline in that business, it relates to the license. The apparel part of it related to pro sports. Licensed apparel related to collegiate activity is an ongoing priority for us and actually one that we're putting more energy and focus against. But Janet, in terms of our ability to manage through a little bit of choppiness in apparel, I mean, over -- we'll manage through that. Well, the lead times and the tools of speed, I think, are very well hung. That team has done an excellent job in terms of embracing speed and managing inventory in very tight way, so their ability to read and react and chase and adjust is very, very good. So we're optimistic about that business.

Janet Kloppenburg


Stuart B. Burgdoerfer

Yes, it depends on timeframe. I mean, but the important answer to your question, for my judgment, is absolutely, absolutely. Now if you said, "Okay, is it this week versus -- or this month," but over time, not worried about it at all.

Amie Preston


Richard Ellis Jaffe - Stifel, Nicolaus & Co., Inc., Research Division

Two questions. The first is regarding your franchise partners. What percent of sales do you receive as a royalty treatment from your franchise partners? And then secondly, pretty notable in its absence is any discussion of e-commerce or omnichannel, both investment in the VSD business and the opportunity through its investment?

Martin Waters

So maybe I'll take the franchise comment. You wouldn't expect me to tell you what the commercial arrangements are with all of our partners. And I -- even if I did, I don't think our partners would be happy with me. So clearly, those terms are confidential. What I would tell you is the strength of brands that we have, with the depth of emotional content and the success we have in the U.S., delivers world-class royalties. So in the case of the VSBA business, I don't know a business that generates a higher retail royalty. So a reason to be optimistic on the strength of the brands, but not a matter for public disclosure.

Stuart B. Burgdoerfer

With respect to the -- our direct businesses for Victoria's and Bath & Body Works, I commented on the fact that we have very substantial businesses there and very successful and profitable business. Victoria's Secret Direct, as I think many of you are familiar with, is really the tale of 2 stories. We got a business that sells bras and panties and PINK and beauty and sport, that's performing very, very well. And we've got a portion of that business, meaningful portion of that business that we're repositioning and reducing our emphasis on, and that's the general apparel business. So when you add those 2 things together, the results have been not to our full expectation over 6, 12, 18 months. But again, it really is the tale of 2 stories, with very good performance and strength in the intimate apparel and related categories in our business. I think you're asking specifically about investment in those businesses. We've got great distribution, logistics. Both businesses have very good websites. Earlier this year, we rolled out important functionality that frankly caught us up with the industry, which is about being able to buy online and return in store in a seamless way; and also, if we're out of stock in the store, being able to, through the point-of-sale system, get the item that you're interested in delivered on your doorstep within a day or 2. We will continue to make investments in that business to improve the websites and do other critical things. But our focus, and just to be transparent with you and with the group about our thinking, we really do believe that we can double the North American store business. And we really do believe, I try not be flippant with words, that we can grow sales 5%, 10%, 15%, maybe 20%, through selling more effectively in our stores. And when you think about the magnitude of that opportunity, that's why you hear us talk about those opportunities and not as much about the direct business. There's some in retailing, and it's interesting, there's some in retailing that are moving to a place which is probably appropriate for them. But I don't think, at least at this time, it's appropriate for us, where they're turning their stores into mini warehouses and they're fulfilling from the store. I can imagine how you could get to that logic in certain businesses. But if you believe that the biggest opportunity that we have is around selling associates, selling more effectively and engaging directly with a customer that's in front of you, that's where we're putting our mind, time, our energy and our focus. So I wouldn't want you to -- I would hope that you wouldn't walk away thinking that Limited Brands doesn't have good direct businesses because we do. I wouldn't want you to walk away thinking, "Boy, they're not investing anything in these businesses, and they're going to fall behind and become irrelevant," because we're not. But you should also come away with "Boy, these guys really are bullish about the opportunity for growth," through our store channel, where our customers can get the full experience. I mean, it's -- look at those videos that Martin showed. You can't replicate that experience online, guys. And our businesses are about emotional content, and that emotional content comes best to life in a store environment. So hopefully, that helps explain our thinking in how we view the business.

Kimberly C. Greenberger - Morgan Stanley, Research Division

Stuart -- is this on? Okay, there we go. I wanted to know if you could just help us bucket the doubling of North American revenue. I think you've talked about 25% square footage growth in the U.S. Is there another $500 million available in beauty? Is there another $500 million available in sport? What are the sort of pieces of your business that you would expect to see growth in the next 5 to 7 years that could potentially lead to a doubling? And I know your long-term revenue target is $20 billion. It sounds like you think that is potentially something you could deliver in North America. So Martin, what would you be shooting for kind of longer term in terms of international revenue?

Stuart B. Burgdoerfer

Kimberly, the way we think about the growth opportunity in North America is there is really 2 views that are additive or complementary. And to me, it's -- the simplest way to think about it, and it is a way that works internally and I think that works externally as well, and the first view is from the merchandise lens. And that merchandise, so that's about product in key categories. So for us, that's about bras and panties, that's about PINK, that's about shower gels and body lotions and home fragrance, core categories on our businesses. And we believe through growth in those core categories, which fundamentally is coming from newness, from elevation for more emotional content, think about things like Forever Red at Bath & Body Works, that there is the opportunity to double our business in those core categories. So maybe you might say, "Boy, that's highly aspirational. And can you really fully double solely based on flow of new product and core categories?" The other key driver of growth that is completely complementary and I think additive is that, that opportunity around store selling that we've talked about. So do we know exactly how it's going to play out? No, I'm not going to stand in front of you and say we know exactly how it's going to play out. But with that said, I wouldn't want you to think that we only talk about doubling the business once a year in New York City for you guys. I mean, well, through Les' leadership, we talked about that actively as a leadership team. And so I do have pieces of paper in my briefcase, I'm not going to share them, about what that plan could look like, right? But one of the things that we tried to be realistic about is 5-year plans should stimulate thinking, and they do, but in many cases, the actual way that it plays out is it's going to have some variability to it, as you would appreciate. But that's how we think about it, a lot of growth from core categories, square footage growth that we outlined that you understand and then growth -- complementary growth through the store-selling opportunity that we talked about. In terms of our revenue target, we haven't been formal about that. I didn't put it on a piece of paper today. And importantly, just sheer thinking, and it's -- hopefully, you don't take it is that we're soft or we're not -- we don't have conviction in the opportunity, we do. But we haven't put $20 billion with a timeframe on it. I'm sure most of you guys would like that because you could put that in your model and say, "Okay, I can model this out." We do believe that there is a very substantial growth opportunity for our business. I do have what I'll call a middle-up plan, which is not highly detailed plan, do have a middle-up plan that's generally consistent with the goal, so there is some paper related to that. And with all that said, while there -- while we believe in and think about that long-term growth opportunity, as Les said in his opening remarks, one of the key things for us to be focused on is also delivering in the here and now. So this is not a company that spends all of its mind time, all of its mind time on 5-year planning. We do not do that. Do we have some planning? We do. But it's also about the day, the week, the month, the quarter, the season, the year. And what we found in our business, over the last 4 or 5 years, is that healthy focus on the near term is really important to the consistency of the results that we've delivered, very bullish about the opportunity.

Martin Waters

I'm sure everybody's guessing which is Stuart's briefcase now. On the international front, same story. We don't spend a whole heap of time imagining what 5 years or 10 years out might be, because what are we going to do? It's about delivering tomorrow's results, one store at a time, one customer at a time and then one market at a time. But what I would say is if you accept the notion that the U.S. market is a 300 million person market, there's nothing God-defying that says that, that should always be the biggest market that we operate. The rest of the world is infinitely bigger. China alone will probably be bigger. We -- our intent over the very long term is to be present in all of the key markets around the world. So I don't know that it's sensible to put any kind of limit on what the size of that business should be. But it all counts for nothing if the foundation isn't right. So absolutely, echo what Stuart said, it's all about delivery today.

Unknown Analyst

Martin, my questions are for you. But just for one second, Les, I know you're still here listening, and I know you think Columbus is the center of the universe, but there is some of us that think Ann Arbor is still the center of the universe. So Martin, just a couple of quick questions on the international business. Could you update us on the direct business internationally? And then from a high level, can you talk a little bit about, over the next several years, distribution centers and what have internationally? And then any thoughts you have, as you push into Asia and then eventually into China, about product formulations and/or just product labeling and signage, local to certain regions in the universe?

Martin Waters

Yes. That all sounds like the subject of a 2-hour meeting, but I'll take it piece by piece. In the direct business, right now, we have round numbers, a couple of hundred million dollars of direct business that goes outside of the United States, and it goes to around 200 countries around the world. So we already have a significant non-U.S.-based business in international, and we're very proud of that. And it's productive and profitable, so we're already in it. In terms of distribution centers, we approach it from a different point of view. I'm not focused, and neither is Charlie McGuigan, who runs this part of the business, not focused on building warehouses around the world. Our belief is that the job is to get merchandise from base of supply to the customer in lightning speed, in real-time response to customer demand. And whether that means you need to build warehouses around the world or whether you put it all in one place, it kind of doesn't matter. So it's not a step in the journey that is in any way constraining us from building our business. We can fly merchandise from Columbus, Ohio to anywhere around the world in about 18 hours. So location of warehouses isn't something that we think about as a constraint. Your third point, absolutely, is a constraint. So having merchandise that's suitable for local market, be it through language or formulation or FDA approval, that's critical, and we have a lot of people working on precisely that. The good news is that for the vast majority of the world, the vast majority of our formulations work. So the good news is, for the most part, what we sell here can be sold in significant places around the world with a few exceptions, one of which is Japan, where a different formulation is required. Hence, Japan isn't particularly a focus area for us. China is possible. You just got to go through a lot of regulatory hoops. And so the reason I think that it will be fall 2014 before we get there is precisely for that reason. But I don't think any of those things are showstoppers or are roadblocks to our growth over time.

Unknown Analyst

So I guess, Stuart, this is maybe piggybacking off of Kimberly's question, although in a different way. 875 stores don't carry the full lingerie assortment and 725 don't carry the full PINK assortment. So can you remind us how many stores do you think -- I assume not all, 1,050 can carry it. So can you kind of remind us...

Stuart B. Burgdoerfer

Yes. This will sound like I'm really generalizing or swaying [ph]. It's probably 70% or 80% of the fleet should have all of that.

Unknown Analyst

And then Martin, can you remind us your thoughts on BBW in the U.K.?

Martin Waters

BBW in the U.K.? Good question. So I sort of hinted at it when I said the primary work is to build out the VS business in the U.K. But as we learned more about real estate and how that brand resonates with consumers in the U.K., do we think about BBW? We absolutely do. So we haven't committed to do it, but we think it will work. The great thing about what I do is the number of opportunities is a little less. You can write them down and there's dozens and dozens and they're all great ideas. Now what we're trying to do is rank and stack them and list them in terms of priority order and really force ourselves to distort our energy to the few that produce the many. And that's what gets us to the plan that I outlined. It doesn't in any way mean that, that's the only stuff we thought of. Yes, there's so much more we could do. Am I fascinated about it? Yes, I am. Absolutely, I am. But I -- Les tries to discipline us all to focus on the few that produce the many. So I think we'll get there, but not now.

Stuart B. Burgdoerfer

I want to add on one thing because you -- I wouldn't want to be misunderstood. So in terms of the opportunities, 70% or 80%, that's what I said here thinking based on what I know. But maybe the more important thing to register is that we monitor it very closely. So you might think, "Wow, I guess this [ph] sums up pretty quick, 70% or 80%, that kind of sounds general." But the more important thing to know is that our lead time on real estate is 6, 12, 18 months. And as you saw what we did in 2009, if we're not getting the results or we have concerns, we'll pull back. So the beauty of our business is it's a short-cycle business. And what we'll do is as we work that opportunity list for PINK's and expanding square footage for lingerie, believe me, I look at those results very closely and very frequently because inventory will make you sick and real estate can kill you, right? And I don't like that alternative. So again I wouldn't want you to think, "Wow, the guy doesn't seem to really have a percent number," because the honest answer is I don't. I think it's a really big opportunity. But what I really want you to know is the management of the company, CFO, real estate, Les, Sharen, the case of Victoria's Secret, we're looking at those numbers and we'll read and we'll react and we'll adjust based on what we see, but we see a very big opportunity.

Amie Preston

Stuart, I've got a question from the web. So in light of the large special dividend paid out in 2012, as well as positive shareholder support, is a special dividend still under consideration for the remainder of '13?

Stuart B. Burgdoerfer

The simplest answer to that question, and I'll try to do a little audience participation here, when do we make most of our money and generate most of our cash, which quarter? Fourth quarter, right? So the short answer is we'll see how the fourth quarter goes, and we'll balance all the inputs and the factors and that we'll determine what's appropriate, and we'll do that in consultation with our board. But we haven't made any decisions about that because, again, so much of the business is done in the fourth quarter. And we'll make a judgment based on what we know at that time about what's appropriate.

Unknown Analyst

Yes, Martin. I was wondering if you could talk about the 2 formats that you used internationally at VSBA, VSFA. It sounds like you're accelerating growth in VSBA. Does that in any way limit the flexibility later for expansion through VSFA? And can you perhaps talk about the mix as you think about the -- between the 2 formats -- actually think about the $2 billion opportunity in the Middle East, $1 billion opportunity in Southeast Asia, et cetera?

Martin Waters

Yes. The short answer is no, it doesn't in any way limit the opportunity for VS Full Assortment store. I'll give you a real life example. The #1 VSBA store in the world was an $8.5 million store and 1,000 square feet of space and we closed it. Why do we have to do that? Well, we did it because we put a full assortment store into the space where that was. So in malls where we have VSBA often teased up how big the opportunity is for the master brand, and we're very, very happy to replace one with the other. By the same token, we have malls around the world where we have VSBAs and VS Full Assortments trading in the same location and trading very well. Some of these larger mall sites around the world, I can see that we have a full assortment store in 2 VSBAs. The opportunity is so significant within the beauty category. So nothing we're doing with VSBA limits the potential for VSFA. If anything, it informs the journey. So that's what I would say there. On the specifics around the Middle East, it's more than just 2 formats in the Middle East. We have 4 businesses internationally in the Middle East. We have over 250 stores now, La Senza has a market-leading position in every one of the Middle East markets, and we're at the beginning of the beginning. BBW is only in about 40 stores in the Middle East. The potential is in multiple of hundreds. So whatever the final numbers end up being across those 4 formats, we can see a path through those multiple countries in the Middle East and Turkey to get to a very, very big business. The important thing, I think, and this is what I was trying to emphasize, is that we focus on it. We don't get bored and say, "I wonder what Latin America would be like," or "Maybe we should go to Paris next" or just -- we know that, that's working. We know that we've got good people in those markets, so that's really build out those opportunities. Does that help?

Unknown Analyst

Question for Stuart. Stuart, how long does it take to scale the international business so it becomes accretive to margin? And then Martin, can you talk about why South America seems to not have been a priority?

Stuart B. Burgdoerfer

In terms of accretion to the company's total margin rate, I think we're probably 3 years out. But with that said, international has contributed to operating income dollar growth this year. And that dollar contribution will become more meaningful next year, 2014. But in terms of accretion, total international accretion to the company's margin rate, and I don't have that piece of paper in front of me, but my number is reasonably good, I would say it's probably 2 to 3 years out.

Martin Waters

Yes. I think speaking about the opportunity in South America, South America will be an amazing market for Victoria's. Many of the supermodels are from part of the world. We know that our Beauty business does incredibly well. We're excited by the opportunity. We're excited by the number of customers that there are. But at the same time, it's a very difficult place to do business. If we closed our eyes now and we transported to a mall around the world, with almost -- with very few exceptions, you wouldn't know where you are in the world because most malls look the same now. They're populated by the same brands, except for South America, because it's such a closed market and the restrictions on trade are so punitive. But while -- it's not that we'll never ever get there. There are just easier ways to make a living in the near term. So we're opportunistic in Latin America. We're deliberately deferring the very big markets there until later when we've got more experience, more capability, more cash flow and we'll do it later.

Amie Preston

Okay. We're going to do one last quick one, and then we're going to take a 15-minute break. Anybody? Dana in the back?

Dana Lauren Telsey - Telsey Advisory Group LLC

You talked about the sport business. How big could the sport business get and how similar could margins be to PINK or your other businesses? And then I noticed La Senza is opening in the United States in 2014. What do you see is the opportunity there?

Stuart B. Burgdoerfer

So this, Dana, will sound like a convenient number, but it's a number that is as good as any and it's a substantial one. We could see a $1 billion sport business. And again, that's a big round number, I realized, but it's a very substantial opportunity. In terms of the margin rate, there's another company involved in that space, and I think their margin rates are pretty good. By the way, our margin rates are pretty good, too. And so we think the margin opportunity there is a very healthy one, big opportunity.

Martin Waters

And a similar answer with La Senza, a huge big opportunity for La Senza in every market around the world. The idea about popularly priced for young intimate apparel brand, I think, resonates everywhere. So we have 1,000 VS stores. We have 1,500 BBW stores, I don't know what the number is for La Senza, but it ought to be big. And you should know, we wouldn't do it if we thought it was just a couple of dozen. All of that said, one store at a time. Let's open the 6 that we're going to open in the spring, let's figure out what the customer reaction is and we'll update you when we know, but we're excited about it.

Amie Preston

That's great. Thanks, everyone. Okay. So we're going to take a 15-minute break, and be back in here about 10:45. Thanks.


Leslie H. Wexner

I have no new insights from Urban Meyer, but I think we're breaking up the cost of clutches in the back. I'll be happy to start. I can try to answer questions. Direct them to Martin, Stuart. Make up answers, whatever. A lot of the questions were very good and reflected the -- trying to understand what we're saying so. Anybody have a -- sure. John, I can hear you and repeat it. It's okay.

John D. Morris - BMO Capital Markets U.S.

Yes, It's John Morris with BMO Capital. Les, you and I were talking, and you're very helpful to share at the coffee break a little bit about your outlook in the back half, in the -- really, holiday for the consumer. I think always insightful. Think about your view towards the consumer this holiday compared to how you are thinking about the consumer last holiday and maybe some of the insights you were sharing with me about mall traffic.

Leslie H. Wexner

I think John was asking me about mall traffic and what's going on and I was just remembering probably a meeting 20-odd years ago, where people were talking about department store performance and mall traffic, and I said they were increasingly becoming irrelevant. And people were really surprised that I'd be so insulting to department stores, but they did become irrelevant. So the average Apple Store probably draws more traffic to a shopping center than any department store does. And it's probably healthier traffic in terms of its age and what that traffic would mean in terms of opportunity for us. Shopping for all of us, most of the time, is free entertainment because we start to look at things and sometimes, we buy. So if you look at mall traffic, just footfall, and then you could qualify mall traffic that had real intention of buying or capacity to buy, it would be some number greater than 100% of the footfall. And the footfall in shopping centers, and we know at Easton and other centers we're in, we look very carefully at restaurants because in most or in many shopping centers, probably the volume potential for food, sit-down restaurants, foodcourt restaurants, fine dining, the whole mix of things, is probably greater than the department store volume or traffic. And -- so there's a different reasons for shopping precincts to be visited, whether they're street locations, high street locations in the U.K. or mall locations in the U.S. So you have the remixing. And I think we made a very smart decision recognizing about 10 years ago that apparel was going to be less significant in terms of how people fought in terms of emotional content, whether your personality is defined by the smartphone that you have or the accessories you carry. And I was telling John at the break in Easton, specialty store accessory business that we can identify, it's not the department store, just dedicated specialty stores selling accessories is about $20 million. But that couldn't have existed 5 or 10 years ago because the volume specialty stores and the accessory category didn't exist. And by the same token -- and I'm not dissing on anyone, but I don't find that at this point in my young life or probably in yours that there's a great reason to go to a department store or to a shopping center to buy a pair of jeans because if you found a pair of jeans like, you could buy them online. So the definition of what you shop for, what is commodity like and what has emotional content, has changed and probably will continue to change. So that fundamental, what businesses are we in, and of these businesses that have emotional content, where people want the store experience, just like we all want to go to a restaurant rather than eat some kind of frozen food at home and want a variety of choices, I think that's fundamental in understanding what we do. And I think that also in the broader context of the shopping center, what businesses our shopping experience is and do they have emotional content? So 10 years ago, I would not have guessed that there'd be much emotional content shopping for a smartphone, but maybe the category hadn't been defined. But it -- there is high emotional content in the shopping experience and the accessories that go with them. And so the retail wheel is always changing. And I think the question is what are we doing and what aren't we doing? And I asked myself that because it's easy to slip to the adjacencies because they're always sexy. They're -- and interesting. The question is do you prove and test that your core has expansion and opportunity, or do you just get dull in your basic merchandising? I think that flops over to holiday, is that when we have bad holidays, generalizing maybe in the last -- my whole life experience in the last 10, it's largely been self-inflicted. We are much more vulnerable to what we do to ourselves than what competitors do to us in general shopping conditions. And when you have high emotional content, as Victoria, and you don't have bra launches and newness and just great gifts. You play it conservative because the world is going to be promotional, is that you get a bad result. So I think we've been across all of our businesses. We really looked up our tailpipe. And so we just didn't execute gifting and holiday and just all the things that are within the bandwidth of what we should do. And I think we were just staring at the soup a little bit too long about the general world condition. And I had laughed at myself when I picked up the news the other day that Macy's was going to open up on Thanksgiving day at 8 p.m. or something. And I thought, it's an idea. I mean, they could open up at 8 in the morning, I don't think it would make a damn bit of a difference. But they don't ask me for my opinion, so... And if they heard this, I'm sure somebody will call Terry and tell him how to psyche me. And he'd say, "Well, that just shows what he knows." So it's like, I don't care. What does the Michigan coach think of Urban Meyer, I could care less, and probably, so could Urban. I mean, you just -- you got to do what you got to do. And you have to be smart in what you're doing. And we have great leadership. I think they're -- hindsighting and being insightful is what really matters.

Thomas A. Filandro - Susquehanna Financial Group, LLLP, Research Division

Hey Les, right here, Tom Filandro. On the beauty business, I think you guys felt that there was some self-inflicted wounds last year entering the holiday season. How are you feeling about that business, the positioning this year, entering 2013 holiday?

Leslie H. Wexner

A lot better. The -- again, I think in that business, I think Sharen has provided a lot of leadership in the beauty business, in Victoria, and there's been a change of leadership, and I'd really -- looking at the experience and the repositioning, if you would, our beauty business, it really is competitive with Prestige. And the most recent launch, Victoria, that kind of packaging, those price points, most successful beauty launch, fragrance launch Victoria has ever had. We're looking to do more of that. I think at the Prestige level, Victoria has 3 of the top 10 Prestige fragrances. And our goal would be to have 10 of the 10. I mean, I think it's a reasonable goal and I think we're capable of doing it. That's what we focus on. So I think we're better, much better-positioned. The interesting thing about that, by the way, and it comes back to the Christmas question, is that the heaviest time of purchase for fragrance perfume, the Prestige, the giftable, obviously giftable fragrance products, is that there has to be trial and usage through the year to get purchased at holiday so you could have a holiday launch. But if most people were buying fragrances, a gift for someone they cared about, they'd buy their -- they would buy them favorite fragrance. So they have to know that there is one. So I think that this holiday in beauty will be much better because we've been on launches and we have the followership that can be amplified at holiday, and also the element of holiday execution. The same thing is true in Bath & Body. A very successful launch. And it was a speculative launch, our Forever Red. Last holiday and this holiday, I think we have 3 Forevers. And they've been tested and they don't cannibalize each other, and they're getting better at that business, too, which I think changes aspirational part of Bath & Body Works, moves them to a higher price point and something that is clearly more gifting. So there's a -- I think it's kind of the same across the businesses in beauty. Really, I'm optimistic.

Jennifer M. Davis - Lazard Capital Markets LLC, Research Division

Jennifer Davis, Lazard. Right here. So Les, I agree. I mean, your brands are unique, your product is unique, so you're somewhat insulated from general trends, but I was just wondering if you could talk a little bit, kind of your take -- since you've been in the business for a long time, kind of your take on the consumer right now and retail.

Leslie H. Wexner

Well, I think the consumer -- I think is just nervous for obvious reasons. I think we all are. I mean, there's so much uncertainty in the world, whether it's the evil empires, politically and militarily, the instability in the Mideast, and the financial instability that exists in the world, where we were kind of the, as a country, the bastion of stability financially. Now we're kind of the epicenter of stupidity. I mean, really, shockingly. So I think people react to that. But inside of that, there's another phenomenon. And somebody -- I think it was in The Wall Street Journal, could have been the New York Times, wrote an article about retail. And they said, "Well, with people focusing on buy homes, moving into apartments and buying cars, that does have an impact on retail." And it's like, "Yes, about every 7 or 10 years," I've remarked on that. And then an audience just this, people say, "Well, that's an excuse." And it's like, no, it's reality, is that people have a certain amount of disposable income. And if you have planned significant purchases like cars, like homes, heavy duty electronics, then your impulse purchasing power goes down. And whenever you -- whenever -- I have experienced like a real boom in housing and automobiles, the likewise booming, it has an impact on mall traffic and the consumer because they just don't have the flex. So I think right now, you have a confluence of things in the environment that are worrisome and unsettling to all of us and people making decisions about big-ticket purchases. And it's like, yes, that, too, will pass.

Unknown Attendee

Last question around PINK. Just curious about how you think about the guardrails around the brand. So what is the thinking behind the product categories to give PINK a longer life cycle than maybe just the teen brands that we've seen over the last couple of years. You go in the stores and you see jeggings and you see hoodies. So just curious how you think about what's right for PINK so it doesn't become faddish teen brand?

Leslie H. Wexner

You've got to be smart. I think the notion, and Stuart mentioned it, is it really deserves to be amplified. That if you see -- if the customer and we see PINK as faddish teen brand, apparel-based, then no matter how smart we are, we could be a faddish teen bran and we have -- we'll have to zig and zag and find our way through the fickleness of teenage fashion. And that is not an insignificant part of the PINK business. The greater significance is that have more of the volume is in bras and panties. And that gives the brand a balance and I think it gives a very different emotional characteristic than a hoodie and sweat pants store. And I think the fact that it's connected, it's Victoria's little sister, is very different. And I think from a fashion point of view, whether it's in the loungewear or the lingerie part, is staying with that collegiate customer, that collegiate preppy mindset from a fashion point of view. And I think that has an impact on the lingerie and the apparel. Typically, I don't -- I've never sat through another retailer's presentation. So I just -- I didn't think it was fair. So I think it's even kind of a moral judgment about spying or something, but I think people -- from what I read, most people talk about staying close to the customer. But when you have this enormous misses as fashion apparel, obviously, you weren't close enough or you were just freaking blind. So the question is there is customer there, that young high school, college men and women are buying things and the question is, can you look and really see them in reality, or do you see them as they were or you want them to be? And ad nauseam in our businesses like store visits, what did you see? What do you observe? What shifts do you see? I can't go into fitting rooms and look at bras and panties and ask people where -- ask women at [indiscernible] where they bought their lingerie and how do they feel about what they're wearing. But that's stock in trade for the merchants in our business. Can you really look and see. Because you -- if you -- you can, in hindsight, always see where the customer shifted. The question is are you close enough to anticipate those shifts? And it's touchy-feely stuff, but that merchant, that informed merchant intuition is important in all of our businesses. Again, I think seeing apparel from a strategic point of view as being less important was a debatable, arguable differentiator for us. But we -- I think, we saw it right. An enormous crowding and devaluation, deflation, if you would, in apparel, both in price and emotional content. So I think it's hand-in-glove kind of view, is how do you see the world and how do you navigate through? And I think it's more than a crystal ball. I think it's really working at those things, and we talked about them a lot. Okay, I'll let you pick the...

Unknown Analyst

Hey, Les, question. When you look over the last 10 years, clearly, the business and the brands you operate have changed a lot, and Stuart showed us how much capital has been allocated back to shareholders over that time as well. Just curious now -- and obviously, it doesn't sound like apparel or something you're really interested in, but in terms of maybe taking some of that capital and putting it toward something more like an acquisition to leverage some of the investments and the intimate space or the Bath & Body care space, would you ever consider that? And I guess conversely, would you ever consider pruning off some of the smaller, less productive businesses that you do still operate?

Leslie H. Wexner

I'm not trying to be funny because most of your questions, yes, yes, yes. I mean, yes. Our heads work, I hope. I mean the notion is, where you have -- the most fundamental question is what businesses don't you see attractive? That's a strategic decision. I think we've been reasonably insightful. And where you have opportunity, let's look at where we're winning and see if it makes sense. And this speaks to adjacent businesses, adjacent categories, adjacent geographies. And I think -- I was listening to Martin and Stuart and thinking about what I said this morning. The thought is, when you do what we do, you're a specialty retailer, there is a -- hard question isn't what else do you do? It's what do you stop doing and how narrow is your focus? We're specialists. So we're not general physicians, we're not general surgeons. Our -- we earn our living by knowing a lot of our about a little and keeping it that way. And so this notion of growing the core categories in the core businesses and then proving in the core channel stores, can we actually prove that we can grow volume? And so the notion of doubling the business, we've proven that. We've tested different size stores, different mixes of merchandise, different adjacencies, different support for stores and selling format that we're convinced we can grow the business in North America. That's astonishing. Not that we -- not that it's an ambition, but we've proved it, just the way we would prove a color or a fragrance. We've proven it. And it's -- in the internal activities [ph], we say this to ourselves. And this summer, we're going to have 2 or 3 state meetings. And everybody could have said, "My God, we can double the business just doing what we're doing." We don't have to go to adjacencies. We can -- we know North America probably as well as any specialty retailer in the world, and we've proven we can double it. And contrary to -- I won't say popular notion, but a lot of the stuff, we're proving we can do it in stores and we can grow our Internet business. Say, "Wow, that's really interesting." I mean, if McDonald's said that he could double the volume of every store and they tested it in more than 100 stores around the country and it had significant financial leverage, wouldn't that be an amazing thing? And we say, "Well, why don't you open stores in Bolivia?" It's like, "Hey, this is Texas and we're -- there's a lot of oil here. We don't have to go to Utah to find out if there's oil." So the notion is like this is powerful stuff. So the notion of focus and testing and then looking at North America and say, wow. I would not have imagined this, that we could be this confident 2 or 3 years ago or even dreamt of a potential this great in North America. And the notion of being able to begin in Canada as a separate business, not distract the North American business, proving that it was substantially similar, different currency, but substantially different, gaining real estate skills, understanding the operational things, but most of all, the customer, and say, "Now, we could, over time, integrate our Canadian business into the U.S. business." So it's the 51st or 55th state, is that great efficiencies, and now take the full focus of the international team and say, "Now, can you develop a country like England into a major business and test into that and build the base of support that you cannot actually have an operating series of businesses in the U.K.?" Simpler, because it's the same language, simpler because we've tested it. And from an economic point of view, it seems to be more advantageous than France, Italy and Spain as a geography. So it's -- we're trying to be very choiceful, do a few things, whether it's bras and panties, the brands that we have, and we have so much potential on the brands we have. Not closed-minded to look at other opportunities, but what can I can say? I don't know. This will be like playing bridge or something and every card in your hand was a spade. [indiscernible] I think I should bid this. I mean, it's really a neat thing. And it's much more fascinating to talk about new businesses and spin-offs and cousins and be envious of what other people are doing. I think we have a neat sport business, by the way. There's 10 guys in the world who think they do, too. So I'm not sure sport thing is magic pill. I think it is -- it can be a very healthy part of our business. But I think it's good to be much like the jean store business, everybody can have one because it becomes so obvious. Whether it's a specialty competitor or brand like Nike, Adidas. Everybody's not here has found it. It's like, yes, we're going to focus on the same damn thing. And I'm a -- Bruce says I'm a contrarian, and I don't think I'm necessarily a contrarian. But I do question whether certain things are fad or are they really -- and if they are, what does it mean to us, rather than "Is this significant enough?"

Paul Lejuez - Wells Fargo Securities, LLC, Research Division

Paul Lejuez, Wells Fargo. Les, you seem as engaged and energized as ever. Do ever think about taking a step back? Is there some milestone that you want to see achieved before you kind of maybe take a less-active role in the company? I'm just wondering how much energy you've got left in your?

Leslie H. Wexner

Well, one never knows. I hope I -- when I was greener, I used to say, I hope I had a long lease. I still feel that way. So I like what I do. I really like the people I'm working with. And what I do is fun. So at some point, I understand reality, but I don't know. I don't plan for that. That's just not my temperament. Abigail was sitting here 10 or 15 years ago. She sat me down for a serious talk about -- that I should retire. And I listened. I didn't argue. I think 6 months later, dear, you said, "Boy, was that dumb." It's like you can make yourself crazy. So I have an awful lot of energy for a lot of things and I don't think about that. Sure. I can hear your question. I could repeat it. You have to wait for mic.

Unknown Analyst

[indiscernible]. A couple of questions. I think if I heard Stuart correctly, some of the market intensification elements seem more scalable across the chain as a whole. If I did hear that right, what were those elements? Were they staffing? What can you do to drive better productivity across the board? And then secondly, as you launched China, is it more likely that you'll do that with a franchise partner? Or will you want to own those stores?

Leslie H. Wexner

The last one, first, we'll see how it goes in China. Our hope would be that we can do it with a franchise partner. Just -- I think the model that we're building in international, and I think Martin said it very clearly, is that we have the ability, I think we proved it in Canada, to operate multiple brands through international, using the intellectual property that's created in Ohio. I think we also have, at some level, demonstrated that we can export that intellectual property to the U.K. and own it ourselves. And significantly, and much to my surprise in the Mid East and Turkey where we've exported intellectual property, and the capital investment, the lease liabilities, the overhead of people, has been taken by a partner and they work the same. And I think it's because our approach is the same, and heavy emphasis on building the international organization and building the skills ahead of need and testing slowly so that we could understand the skills that we needed. And I think China is a vast market. We could have 2 or 4 partnerships in China and divide it up on a regional basis, and on a merit basis, just see who does it the best. But it's too vast a country in size and complexity, I think, to do it with a partner. And at this point, I don't think there's a compelling reason for us to put capital into China. I think we can export intellectual property and have a much higher return and hopefully, have the same amount of oversight. Martin mentioned that -- and Stuart just came back from an international trip, and I make these trips, but it was interesting to hear it from Stuart. He said, it's amazing that the quality of real estate that our partners have and the quality of stores we build -- well, 3 years ago, we could build a store -- only had built stores in the lower 48 states. And to go from, I don't know, Hong Kong to Moscow to London to Abu Dhabi, and our real estate guys -- our store guys can actually plan stores, go there and manage the construction, manage a few with the -- our partner's money and build the same high-quality store that's exactly the same as our stores that we build in the United States. That's pretty remarkable to me that we could develop that skill in 3 years. And on a real estate base, I don't review every real estate transaction in the United States, let alone globally. But it's interesting, in a real estate meaning, for people to talk about. This mall in Abu Dhabi, [indiscernible] location that our partner wants isn't good enough, we're going to say no. If it was our money, we wouldn't to a secondary location. We have to be this amount of frontage, and your -- whatever it is, escalator can't be blocking us. And that's -- I seize on that one as an example. A partner would say, "Well, it's okay because we're paying the rent and this location is good enough." And we say, "That's just not how we do business." So we do approve all of your leases. You can make whatever kind of financial term agreement you want, but we're going approve the site location, frontage, location within a mall. And 2 years ago, we had an international meeting and there might have been a dozen partners. And they'd say, "You're sticking your nose in our business. We know our territory like the back of ours. And you guys come in and you want to tell us about site selection." It's like butt out or worse. We just had international partner meetings, "You guys are really good at site selection, and you're really tough about it. We really appreciate your oversight because you don't let us make mistakes and we make more money." So I think, okay. Those are the learnings that we have. So what I'm trying to describe, very intense operational control to protect our brands. We've -- we obviously want to make money and we believe we have intellectual property and brands that we've tested and proven to be successful. Having said that, we want to make sure the brands are protected, so it's exactly the same shopping experience in every store all over the world. The inventory's the same, the pricing isn't insulting, the display, the layout, quality of service, it appears seamless. So when I go to Kuwait and Abu Dhabi and I visit Victoria stores and I go to the U.K. and visit Victoria stores or I go to Chicago, it looks the same to me. And I think I'm a tough judge. So it's that's good. And so this understanding of how we think about whether we own them or someone else owns them, it's a way for us to manage risk and capital, but not to minimize work. So I want to amplify what Martin said, we're not -- this isn't a wholesale model, the more you buy, the better it is. The better your stores are, the better it is, and our measure is the customer experience.

Omar Saad - ISI Group Inc., Research Division

This is Omar Saad over here, Les, to your left. Omar Saad from ISI Group. The other left. The -- so would you mind in this context of the kind of huge growth opportunity you see in North America and in the U.S., [indiscernible] square footage and just pure sales, discuss your historical kind of resistance to the outlet channel? It's changed and evolved so much from 10, 20, 30 years ago, the traffic patterns and the income demographics of customers into that channel, the returns and profitability by most measures are superior to the average kind of America mall. And then, of course, the premium, the level of premium brands in many of those premium outlet channels kind of are -- also have really come up the curve and there's a lot of great brands in those channels, so I don't know if it's a perception that it hurts the brands to go into that channel, or a channel conflicts with some of your regional mall store basis. But when you think about U.S. growth, it seems like an untapped channel for you.

Leslie H. Wexner

[indiscernible] Bruce says [indiscernible] like don't answer, don't answer. I just disagree. Coach. Coach became a discount outlet brand and as they were growing their outlet channel, they cut their own throat. It was easy money and it's irreparable. So when you have a brand that has high emotional content and high equity, discounting yourself, whether it's the sale activity in your store or discounting through outlet channels, is typically the beginning of the end. I can't find an exception. And that may be a greener pasture or a good, if you would, I want to say, exit, but it's not a great solution. So I can't find the exception. So some of you know me better than others, but I read a lot and I think a lot about retail history and what is fad in terms of retail trends and what is really substantive change. And I think the outlet business is a terrific business. But don't delude yourself, whether you're Gap or Nordstrom. It's like you're cutting off your own water. You might want to. That might be a great place to be. But it's really hard to have a dual identity. And I mean, just -- I can't -- I'm trying to be as honest and as straightforward as I can. I can't find the exception. And I've looked, and it's easy money. It's really easy.

Kimberly C. Greenberger - Morgan Stanley, Research Division

[indiscernible] what about just opening the full-priced stores in outlet malls, just to take advantage of -- sorry, what about opening -- I don't think this is on. Oh, there it goes.

Leslie H. Wexner

The question Kimberly has asked is what about opening full-priced stores in outlet malls. Yes, we've been doing that. Works pretty well. Some of the outlet mall developers are a little resistant to the idea. But we said, let's try a few and see what happens. And it works pretty well. I don't think being in an outlet mall, but no compromise to that in terms of your store and your pricing. Yes, I mean, that -- there is footfall. But I think Victoria has 4 real outlet stores where we bury mistakes. We're trying to get to 3. The fewer, the better. The -- and maybe I am a contrarian, but I just -- I'd just asked you to think about all the businesses that have gone in the outlet business, then tell me about their success as full price merchants. And it might be a very good solution. I mean, for a lot of brands that were dependent on department stores, where the department stores no longer carry their brand, that is a good solution. But it's not -- it doesn't build the brand, and we're in the brand-building business, not milking it. So we plan investing and harvesting, but we're not in self-destruction.

John D. Kernan - Cowen and Company, LLC, Research Division

John Kernan from Cowen. What's the biggest hurdle to getting to that high-teens operating margin goal? Is it macro-driven? Is it -- it's something internal you can change? And then looking at your franchise partners, is -- we've seen a lot of brands reacquire certain geographies and franchise partners. Would it make sense if you have mechanisms over time where you can reacquire some of the franchise businesses?

Leslie H. Wexner

Martin is hoping I don't answer this question fully. It's like we own the brand and if you don't behave, you won't represent us. So we protect ourselves. That question, if it comes up from a partner, would be, it's just the opposite. We're going to make this so good for you and so good for us that we have a harmony of interest. We'll make your businesses better. And as I mentioned, having worked with international partners for 3 years, the first year was kind of like a blind date, nobody talked then everybody was kind of trying to be social. The second year, the meeting was like, you guys are messing around with everything we do, how you distribute the store design, real estate, your operating systems, you don't understand that we're different and our part of the world is different and you just got it wrong, whether it's -- we don't need fitting rooms in the Mid East to -- we don't need, whatever it is. I said, no, this is our ball, our bat, this is how it is. This year was remarkable because I sat through a couple of days of meetings. And the summary was, boy, you guys are really good at what you do, you're teaching us and you're making our business better in our part of the world and you've got -- you got stuff figured out, help us do more. We want to open more stores and what gates us on international is our ability and our evaluation of the partner, not their capital ability because that seems to be not an issue, but are you executing well enough to deserve the right for us to let you open more stores. They're very interesting. I never thought it would get to that [indiscernible]. I know you'd like to open 20 stores, but we think 5 is all you can handle. And if you screw up those 5 that you're after, there won't be any. We don't need you for growth. We want you to be successful and we want the success to be over time. But we're not focused on international because we've run out of opportunity in North America. In North America, it wasn't mentioned but clearly, North America does include Mexico. So a lot of people are focused on South America, and then say, Mexico is in North America. It's in the northern hemisphere. And from memory, I think our friends at Inditex have 250 or 300 stores in Mexico. Interesting. More stores in Mexico than the U.S. It's not as glamorous as going to Brazil, but it's a whole lot closer.

Unknown Analyst

[indiscernible] operating income rate?

Leslie H. Wexner

Oh. I guess I passed over because it wasn't significant to me, but it is to you. We're -- if we quit investing in our major businesses, building the support ahead of the need, we could be at that now. That's how close. So we're making a deliberate decision to invest in the business so that we can sustain and move up. It would be pretty easy to manipulate the expenses to get to a double digit that begins with a 20, if we hadn't -- if we weren't thinking about futures.

Unknown Analyst

I have a question on [indiscernible]

Leslie H. Wexner

I bet you do. [indiscernible]

Amie Preston


Leslie H. Wexner

Well, maybe. Okay. Maybe this is the final question.

Amie Preston


Leslie H. Wexner

Okay, thank you. Amie is so smart. Genuinely. Maybe there is no more questions then.

Margaret E. Kalvar - Harding Loevner LP

Margaret Kalvar from Harding Loevner. I was wondering in terms of getting people to buy bras, which is your basic and your core in North American malls, how much of the purchase of bras is impulse versus how much is planned? In other words, the corollary, being to some extent, how dependent are you on general mall traffic from someone saying, gee, I want to go look in a Victoria's Secret, and then if you do your conversion right, they buy on impulse. But could you describe a little bit the dynamics of that decision?

Leslie H. Wexner

I'm going to turn that question around and say, I've never been a woman and I don't wear bras. So well, I would have to personalize a bit. I mean, I don't think a lot of women say, gee-whiz, I've ran out of bras. I've lost all mine or the washing machine shredded them or something. It's not -- on a need basis, I think it's a de minimis purchase because that's what underwear is. I think lingerie, which is what we try to sell, is we're always competing against your lingerie drawer and hopefully, we have better new ideas. And so that our ability to generate those ideas however we communicate them, in print, electronically, at store, is what stimulates the business. So the question you're asking, I'm not making fun of the question. But because it's a very serious one, it's like being in and selling things that have emotional content are very different than things that have limitations that are functional or even -- well, like in the food industry, share of the stomach. I mean, if you saw 3 bras you like, you might buy them, but you're not going to eat 3 lunches probably. And most normal people might have 1.5 [indiscernible] the capacity to eat that much food, or buy multiple cars because of emotional experience and say that being in the kinds of businesses where the increment is in the purchase decision, it makes you happy. It solves or gives you some emotional boost, and it's not a capital purchase like buying a house or buying a car. So I think it's a -- that's a -- the notion of the fundamental of how we think about the business in terms of the increments that we can influence is kind of an interesting one. My son worked in one of the Bath & Body stores in the neighborhood in Columbus and he'd never sold before, he just graduated from high school. And so everyday, I'd say, what did you learn, what went on? And he'd tell me things, and most of them were really good. One day, he came home, he said, dad, it's just amazing. I helped this lady and she would spend $80. And when she got all done, I suggested that you try the foot lotion. And I said, oh, and he said, and she bought it. And then next I said, well, what happened today? He said, dad, the lady came back and she asked for me and she didn't see me and my back was to her -- he has a little nametag, it says Harry. And she said, is Harry here, and he heard that, he's just petrified because he figured here comes the $80 back. And then she said, Harry, I really like that foot lotion. It was so good. I want to buy 2 more and I brought my neighbor in because she would like some, too. And I said, that's what -- that's the business of the business. It's those incremental purchases. It's things that have emotional content. The foot lotion, I think, was $7. But if she didn't buy that foot lotion, she wouldn't have come back for 2 and brought her friend. And that emotional content and -- not only does it stimulate purchase, but it stimulates the best marketing of all, which is word-of-mouth, whether that word-of-mouth is literally mouth-to-mouth or it's people texting, somebody would say, you got to try this, it's really cool. It's like that's the business that we're in. We make, hopefully, these great emotional movies and we have -- we communicate them by the design of the story, the whole shopping experience, and hopefully, the substance that's in the product. I liked the foot lotion. That's -- that one extra transaction produced immediately 3 more unit sales. Yes, that's how it works. So it's kind of a dumb business, but it's a neat one. I'll take another. I can't see into the light so well. I think perhaps then it's just time to say, on that. I think this meeting, as I was listening to it, was really a good one. I think the business is in a very sound place. Great leadership, very much aligned, focusing on the core of the business and proving to ourselves, if there's substantial growth in our core geography, core categories, core businesses. And so we're really quite delighted. Hope you understand, and I hope that people do smart things in Washington and it will be a Merry Christmas. Thank you.

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