L Brands' (LB) CEO Nick Coe on Q3 2016 Results - Earnings Call Transcript

| About: L Brands, (LB)

L Brands, Inc. (NYSE:LB)

Q3 2016 Results Earnings Conference Call

November 17, 2016, 09:00 AM ET

Executives

Stuart Burgdoerfer - EVP and CFO

Nick Coe - President and CEO, Bath & Body Works

Martin Waters - President of International

Amie Preston - Chief IR Officer

Analysts

Dana Telsey - Telsey Advisory Group

Omar Saad - Evercore ISI Group

Paul Lejuez - Citigroup

Anna Andreeva - Oppenheimer

Kimberly Greenberger - Morgan Stanley

Lyndsay Drucker Mann - Goldman Sachs

Paul Trussell - Deutsche Bank

Janet Kloppenburg - JJK Research

Brian Tunick - RBC Capital Markets

John Morris - BMO Capital Markets

Matthew Boss - JP Morgan

Ike Boruchow - Wells Fargo Securities

Oliver Chen - Cowen and Company

Operator

Good morning. My name is Heidi and I will be your conference operator today. At this time, I'd like to welcome everyone to the L Brands Third Quarter 2016 Earnings Conference Call.

I will now turn the call over to Ms. Amie Preston, Chief Investor Relations Officer for L Brands. Please go ahead.

Amie Preston

Thanks, Heidi. Good morning, everyone, and welcome to L Brands third quarter earnings conference call for the period ending Saturday, October 29, 2016. As you know we've released detailed commentary last night, which is available on our website. Since our opening comments are brief, we plan to end the call at 9:45.

As a matter of formality, I need to remind you that any forward-looking statements we may make today are subject to the Safe Harbor statements found in our SEC filings. Our third quarter earnings release, additional commentary and the earnings presentation are available on our website, lb.com. Stuart Burgdoerfer, EVP and CFO; Nick Coe, CEO of Bath & Body Works and Martin Waters, President of International are all joining us, oh sorry, Martin who is offsite are all joining us today.

Thanks, and now I'll turn the call over to Stuart.

Stuart Burgdoerfer

Thanks, Amie, and good morning, everyone. While we delivered third quarter earnings results that were within our beginning of the quarter guidance, we're not satisfied with our overall results.

Third quarter EPS declined 24% to $0.42. Pink and Bath & Body Works continue to deliver strong results and the Victoria's Secret business continues to face headwinds related to changes we implemented in the business earlier this year. Results also reflect about [indiscernible] of pressure related to our investment in China, the Victoria's Secret Fifth Avenue flagship store, higher net non-operating expense principally interest and FX.

The changes we've made within the Victoria's Secret business were proactive, delivered changes that will result in a more streamlined and efficient organization and will accelerate growth in our four categories. We made progress in the quarter on the implementation of these changes combining our store and product channels clearing through merchandise in the exited categories of swim and apparel and making changes to our promotional approach.

Our brands are strong and we are energized about our opportunities for growth. We will continue to leverage speed in the business and be flexible and agile in our approach in order to satisfy customers and maximize profitability.

With that, I'll turn it the discussion over to Nick.

Nick Coe

Thanks Stuart. So a good start to our fall season. We grew sales and earnings against good results from last year. We continue to leverage and will continue to leverage our speed model to chase into proven windows across the business. We've been able to keep inventory very well controlled confidently monitoring our position and maximizing our agility. We remain pleased with the results of our real estate activity and we'll stay in the read and react mode to ensure the investment and the strategy are smart.

We're very focused on executing Christmas and we're excited about the assortment and we will continue to leverage one of our most important disciplines which is obviously staying as close as we can for the customer and read and reacting to her behavior.

Thanks and I'll turn it over to Martin.

Martin Waters

Thanks Nick and good morning everyone. As Amie said I'm joining in from Singapore this morning or this evening my time where our latest and greatest Victoria's Secret first owned store opens tomorrow morning. And earlier this week I was in China with our team there.

As I said at our Investor Conference Day a couple of weeks ago, we are very bullish about the opportunities for global growth and continue to be confident about the strength and perception about brands outside North America. I'd be happy to answer any questions you have, but in the meantime I'll turn it back over to Amie.

Amie Preston

Thanks Martin. So that concludes our prepared comments this morning and at this time we'll be happy to take any questions you might have. In the interest of time and consideration to others please limit yourself to one question. Thanks and I'll turn it back over to Heidi.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Dana Telsey from Telsey Advisory Group. Your line is open.

Dana Telsey

Good morning everyone. Stuart, as you think about the Victoria's Secret business and the gross margin rate as we go forward, how much, how do you think about the declines in the merchandise margin before you see a balancing of new business versus exiting the old business, how much should this gross margin decline of 190 basis points that we saw this quarter, how do you see that transitioning going forward? Thank you.

Stuart Burgdoerfer

Yes Dana, as we for forward there will be some ongoing pressure in the fourth quarter and probably to some degree into next spring. But as we look further out I would start with we see Victoria's as a business that should be a high teens or better operating margin rate business just based on the quality of the brand and the emotional content of the brand and good retail execution, a place where - consistent with our overall corporate goal.

So there will be some pressure in the fourth quarter. There will be some pressure on the rate probably going into spring of 2017, but on a midterm basis those things will level out and we'll have improvement in the gross margin rate, the merchandise market rate and the overall profit rate of Victoria's after the first part of 2017, that's how I see it.

Dana Telsey

Thank you.

Amie Preston

Thanks Stuart and thanks Dana. Next question please? Operator?

Operator

Your next question comes from the line of Omar Saad from Evercore ISI. Your line is open.

Omar Saad

Thanks, good morning. I wanted to ask about some of the things you discussed at the Investor Day especially around the sport and bralette categories and any update in terms of your effort to really focus on market share in that category to build up your business there and any sort of effect those efforts are and will have on the gross margin line? I guess a little bit of follow-on from Dana's question, thanks.

Stuart Burgdoerfer

Omar, it's Stuart. So we're pleased with our results in the sport and bralette categories within the broad business. We drove a lot of unit volume growth, a lot of trial in those segments, and for that reason pretty pleased with the result. What our company has been able to do pretty consistently over a long period of time is to get to a margin rate and an overall margin architecture that works well for the business over time.

And I can think of numerous examples in the business over the years including our Pink business five or seven years ago that didn't have the same margin rate as the core lingerie business in Victoria's where through understanding the customer well, great delivery of newness in fashion and leveraging read react capabilities and speed, we've been able to strike a right balance and appropriate balance between dollar growth, dollar results and rate.

And so we're pleased with our growth, extraordinary growth frankly in the bralette and sport bra business intentionally driving trial and unit growth. And as I've mentioned we're confident that over time we'll get the right balance as it relates to dollar growth and rate in those categories and in the overall bra business for Victoria's.

Omar Saad

Thanks Stuart.

Stuart Burgdoerfer

Sure.

Amie Preston

Thanks Omar. Next question please?

Operator

Yes, your next question comes from the line of Paul Lejuez from Citi Research. Please go ahead.

Paul Lejuez

Thanks guys. I think at the Bath & Body Works can you talk about your comp performance by location type? I'm just curious what locations, what type of service locations are performing the best may be on an absolute basis, but also where did you see the biggest acceleration, if you could talk about different types of locations, A malls, B malls, C, maybe street locations? Thanks.

Stuart Burgdoerfer

Hey Paul. Let me think here, so we've actually seen pretty consistent results over the last number years across our real estate in general. And I could say probably the same regionally. So we're not seeing any with spikes by region, we're not seeing any with spikes by location. Obviously where we have put investments into the new real estate strategy or rather the remodel strategy, we continue to see very healthy lifts in that business consistent with what we've communicated in the past.

And as you know we monitor that very, very tightly to ensure that we continue to invest in the right locations to get the right return and that so far has been tightly monitored and that's monitored and that's so far has yielded the results that we would want. So we'll continue rolling out through the end of this year and into next year.

Paul Lejuez

Great, thanks, good luck.

Stuart Burgdoerfer

Thank you.

Amie Preston

Thanks. Next question please?

Operator

Yes, your next question is from Anna Andreeva from Oppenheimer. Please go ahead.

Anna Andreeva

Great, thanks so much. Good morning guys. I guess two quick ones for Stuart. A question on the fourth quarter guide wider range of outcomes for EPS than we historically see from you guys, maybe talk about what kind of performance are you embedding at the high-end and at the low end of the range? And then secondly, at Victoria's Secret I think you called out an increase in the legal expenses, maybe talk about what drove that and should we expect that going forward? Thanks.

Stuart Burgdoerfer

Thanks Anna. So with respect to the breadth of our range or forecast what we would – what I would say, what we would say is that the width of that range or the degree of that range has varied from time to time as you look back in our history. And it reflects in the current situation just over a wider range of outcome as we forecast the business and some of that is macro, but more of that is just frankly reflecting the number of changes we've made at Victoria's Secret.

And we're trying to be thoughtful about how we run the business and in addition to an EPS range that you guys are focused on understandably we're trying to make sure that within our thinking is a conservative mindset so that we manage inventories and other aspects of our business appropriately if we end up at the lower end of a range of outcomes. So it's a big quarter obviously, a lot to play for.

We believe we have good plans for the quarter consistent with how we think about the business and run the business, we will read, react, and adjust week to week and in some cases day-to-day depending upon what we're seeing and the results of various tests that we always run. But we do have a little bit wider range than we've had in the last few years reflecting fundamentally a little less predictability given the number of changes at Victoria's Secret.

With respect to the legal matters that we - expenses that we referenced in our pre-circulated commentary, those we would expect that those would not be of an ongoing nature as you would appreciate. From time to time businesses like ours have situations that that are infrequent and that's what that represented in the third quarter. Thanks.

Amie Preston

Thanks Stuart and thanks Anna. Next question please?

Operator

Yes, from Kimberly Greenberger from Morgan Stanley. Please go ahead.

Kimberly Greenberger

Great, thank you, good morning. Stuart, my question is on the EPS headwinds here in 2016 and how we should think about them in 2017. I'm wondering if you could just bucket them into two different sort of broad pockets if you have that detail available. The first obviously the temporary or one-time ones like FX hits, the investment in China, preopening rent on Fifth Avenue maybe there are others?

And the second, obviously there was some EPS headwind here in 2016 from strategic changes at Victoria's Secret and ongoing real estate investments in Bath & Body Works and just inventory management. So I don’t know if you have that level of detail with you, but I'm just wondering, what are the pieces that were headwinds in 2016 that go away in 2017 and what were the headwinds in 2016 that you expect to continue going forward? Thanks so much.

Stuart Burgdoerfer

Yes, thanks Kimberly. So there will be pressure from the changes at Victoria's Secret as I commented on at our Investor Day that continue into the first half of 2017 and the specifics of that we'll provide the best update that we can Kimberly in February when we give our guidance for 2017. The drag or the impact from China, we would expect will decline in 2017 versus the impact in 2016.

Fifth Avenue obviously was a unique situation, so that should not recur. Based on what I see today and what our thinking is at this point, I wouldn't see meaningful incremental borrowing in 2017. So it shouldn’t be an additional interest drag which we had some of this year. So the VS pressure will be there for the first half of 2017. Some ongoing drag from China in the first part of the year, but that we'll lap that pretty quickly in 2017 and in terms of capital structure it shouldn’t be anything meaningful based on what we know at this point.

So hopefully that gives you some flavor for it and you've been following us for a long time, as you know we'll do a lot of work after we get through this fourth quarter which again is about 50% of the year tightening up our views. And frankly also making operating decisions based on our results as we really get ready for 2017, but broad brush that's how we see it at this point. Thanks.

Kimberly Greenberger

Thank you.

Amie Preston

Thanks, Kimberly. Next question please?

Operator

Yes from Lyndsay Drucker Mann from Goldman Sachs. Please go ahead.

Lyndsay Drucker Mann

Thanks, good morning. Stuart, I wanted to ask a bit about the margin outlook for the fourth quarter and it seems as if you have some factors that should actually sequentially be helping you in 4Q whether it's opening the New York City flagship or wrapping the Beauty relaunch and also maybe some of the progress you've made in clearing out some of the excess inventory in structured bras that had been an overhang.

So can you, as you think about 4Q and why the outlook for margins is in a little bit better, is certainly versus what we had contemplated even exiting the second quarter, what are the factors that are sustaining that pressure despite some of the things that I highlighted that might be allowing for some improvement? Is the structured bra business or the Victoria's business or core businesses any aspect of that getting worse versus 3Q or maybe just helping me square those numbers? Thank you.

Stuart Burgdoerfer

Yes, so in answer to the last part of your question first, actually we don’t have a point of view Lyndsay that the core bra business at Victoria's is getting worse by any stretch. I would say what our guidance reflects and again this is dynamic and we manage it week to week and month-to-month is the balance between driving trial and volume between these two new categories of bras that we've talked a lot about, sport bras and bralettes and balancing that trial and margin pressure, margin rate pressure with growth in those categories.

As you pointed out, the Beauty pressure will diminish and that will be a benefit in Q4. But just as we laid out a view and we're going to work hard to beat this view obviously trying to strike the right balance between ensuring that we end the season with clean inventory and really striking a good balance between sales growth and rate. And so, as we add that up there is some, a little bit of improvement, slight improvement versus the third quarter, but still pretty dynamic in trading those factors up and again trying to take a conservative point of view about the rate and we'll work hard to beat that and we'll see if we can.

Lyndsay Drucker Mann

Thank you.

Stuart Burgdoerfer

Sure.

Amie Preston

Thanks Lyndsay. Next question please?

Operator

Yes Paul Trussell from Deutsche Bank. Please go ahead.

Paul Trussell

Yes, good morning. You made some comments regarding the impact of category exits both for the fourth quarter and the first half of the year. If you can just maybe elaborate a bit more in terms of detail on how we should be thinking about that impact to the total P&L and the offsetting factors to those category exits? Thanks.

Stuart Burgdoerfer

Sure, so we did provide a little bit more perspective on the sales pressure that we estimate related to the category exits prepared commentary that was in our last night. But in terms of offsets, number one is we're looking to drive accelerated growth in other categories and number two is you are familiar with and we've talked about before we took a fair amount of expense out of the business. So a pretty meaningful reduction in expenses related to the catalog at Victoria's Secret Direct a reduction in overhead at Victoria's Secret and rationalization of some other marketing activity at Victoria's Secret.

And so we're working hard to drive volume in core categories and existing businesses to offset that sales pressure and again took meaningful expense out of the business as part of the changes that we began implementing in the spring season of 2016. So a big offset is on the cost side of business.

Paul Trussell

Thanks.

Amie Preston

Thanks Paul. Next question?

Operator

Yes, your next question is from Janet Kloppenburg from JJK Research. Please go ahead.

Janet Kloppenburg

Hi everybody. Stuart, I just wanted to talk a little bit about the lingerie [ph] business total bra and panty sales declined a little bit year-over-year I think that's driven by AUR. So when you look at the business and consider the growth of the online bras and the bralette should we think that along with the sports bra business, should we think that the AUR declines you'll be seeing could prevail or do you think that the higher AUR structured bra business can gain some momentum as we go through the fourth quarter next year? Thank you.

Stuart Burgdoerfer

Yes, I guess, Janet, thanks for the question. I mean I would just start with the fact that the bra business is absolutely core to Victoria's Secret and our growing, healthy, very strong margin dollar growth for our business is among our highest priorities in our company. And so, knowing that, just you should know how we think about it, its importance and what we'll be working towards. There have been some important shifts in merchandise categories, but one of the other benefits is we have that offset at least in part the lower AUR is for bras and bralettes is we were doing a lot of those $10 off a bra promotions that as you know we have stopped doing.

And so the timing and specifics of when do we get to meaningful dollar growth in the bra business and the outcomes that are so important to us we're working through some significant transitions right now. We're very clear minded about what the goals are and that's you know from the line point of view through the organization and at the end of the day I'm highly confident that we'll achieve that outcome. But it's a little dynamic right now based on some of the changes in the merchandise assortment and the proactive changes that we've made.

Janet Kloppenburg

Thank you.

Stuart Burgdoerfer

Sure.

Amie Preston

Thanks Janet. Next question please?

Operator

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

Brian Tunick

Thanks, good morning everyone. Two quick ones, first on the fourth quarter comp guide, I guess you are saying flat to positive low singles versus I guess November you are guiding low single, so just curious how we should read into that and is there any timing shifts on semiannual or anything we should think about? And then I guess Stuart, from a capital allocation or really special dividend question we've been getting from investors, you were able to cut your full year earnings outlook, put the CapEx at the high end of guidance, but still maintain your free cash flow range. So just curious how you think about special dividend when you rank your priorities of use of cash flow? Thanks very much.

Stuart Burgdoerfer

Yes, Brian, on the first part of that the pressure from category exits is a little greater in Q4 than it was in Q3 and most particularly as it relates to the swim business in the non-go forward apparel business that we exited. So that pressure is a little greater for Victoria's in the fourth quarter than it is in the third quarter. So that's related to the delta that you are asking about observing in the comp in the question that you asked.

As it relates to special dividend and return of cash, you've also been following us a long, long time. You know what our point of view is about that which is it is a very important source of return for our shareholders and one that we're deeply committed to in a balanced approach between regular dividends, special dividends and repurchases, particularly as it relates to, operating cash flow and CapEx and minimum cash levels.

We earn a lot of our cash in the fourth quarter as you know, we generate a lot of our cash in the fourth quarter and we'll have the right discussions as we always do with our board and work to strike the right balance between a lot of interest and you should know that, the planning of any of the stuff including CapEx is dynamic.

And so, we can, we regularly review the performance of our business and make judgments about how to balance reinvestment in the business and the results have been very strong today based on that reinvestment in real estate with IRR 20% to 25% or better for both Victoria’s and Bath & Body and that's where the substantial majority of the CapEx is going.

But we also take very seriously managing the business appropriately to ensure that we've always have the right cash and liquidity in the business. We’ve got a strong balance sheet and a very good maturity profile and out debt and $1 billion revolver et cetera, but it's dynamic and a lot of cash generated in the fourth quarter and we’ll have the right discussions with our board as we go through the fourth quarter. Thanks.

Amie Preston

Thanks Brain. Next question please?

Operator

Yes. Your next question is from John Morris from BMO Capital Markets. Please go ahead.

John Morris

Thanks. Good morning everybody. Just a quick clarification Stuart and then a question for Nick and Jan if she is there. You know in the prepared pre-release transcript and we talked, we touched on the impact and thanks for pointing that out for Victoria’s Secret for the first half, in terms of comps, potentially negative high single, are we to think in terms of impact are we to think all things being equal, if you’re guide had been plus 2 to 3 or positive singles it's been would that sort of negative mid single or as far as we can see here it’s more like negative high single?

And then maybe if we can just get a quick commentary from Nick and/or Jan if she is there, about the outlook for holiday this year versus last year and I know Jan wasn't there last year, but maybe what she is most excited about, what the differences are, what are you really most excited about? Thanks.

Stuart Burgdoerfer

So John, as you mentioned in your question we were trying to be helpful and qualify where we can, the effect of the exits including, preliminary view of the impact in the first half of 2017. But I really don't want to get ahead of ourselves and start to provide, full 2017 guidance when we haven't really even started the fourth quarter in a meaningful way yet. So, I understand your curiosity and why you’re curious about it, but again I don't want to get ahead of ourselves and say okay so and provide L Brands total revenue or comp guidance at this stage is premature, but we're trying to be helpful to you and others following the company about the qualification or significance of the exits in the first half of 2017, but I don't want to get, go down a path here where we're we now issuing 2017 guidance in early November, mid November of 2016.

John Morris

Understood.

Stuart Burgdoerfer

Jane isn’t with us today, but the Victoria’s team is very enthused about holiday and we believe we have good plans for that business. And one thing that we're sure of is we will read and react and adjust based on those plans and we're enthused about having a very strong holiday result through, a range of new items and key items and giftable moments et cetera. And we'll all see how it unfolds and Nick will comment about their plans for Bath & Body works. Thanks John.

Nick Coe

Hey, good morning John. Let's start with, I think we're in pretty good shape from an inventory perspective, so that sets us up well. Most importantly, you know as well as we know the backbone of our business is agility and so going into fourth quarter making sure we leverage in those muscles so we can react appropriately frankly to her shopping trends and/or the environment.

And we do know the levels that we need to pull in the event that we need to drive traffic and/or drive units. We’ve very much like our customers flow effect. I know you saw that when you were out here and we continue to be comfortable with that. And I think things that we're most excited about probably evolve around understanding how our real estate will continue to perform during that timeframe or type of customer behaviour we get, both in those side-by-sides and in the shop in shops as slightly larger portion of our total fleet then they were at this time last year.

And we're excited about the continuation of frankly strong and healthy home business and obviously the newness that we've delivered, what will transpire from that we’re excited about a fair chunk of the newness that's coming into the store that should be setting us up well for next year.

John Morris

Nick, the assortment looks great and that eastern store looks terrific. Thanks.

Nick Coe

Thank you very much.

Amie Preston

Thanks John. Next question please?

Operator

Yes. Your next question is from Matthew Boss from JP Morgan. Please go ahead.

Matthew Boss

Thanks. So at Victoria's Secret what's the best way to think about the evolution of the promotional strategy from here as we move into next year? What inning of change would you say we're in today? And then just how would you rank the underlying same-store sales opportunities to help offset the category drags into next year?

Stuart Burgdoerfer

So, in terms of change in promotional strategy and where are we in that journey, I would say we’re still relatively early in that journey. So we have made some clear decisions to eliminate or reduce broad-based promotions like the free penny and $10 offer broad promotion that drove a lot of activity in the history of the business obviously made an important change in terms of the marketing, advertising and the prudent in promotion as well around, how we communicate with customers with respect to the catalogue, has made very good progress on driving trial through pricing and promotion in sports bras, bralettes and certain of the Victoria's Secret Beauty categories. But it’s a big subject as you are aware in how do you think about loyalty and loyalty programs, how do you think about proprietary credit, how do you think about the best ways to communicate with customers over time, these various promotional ideas.

And others, more heavily involved in this, but I'm involved in it. I think we’re still relatively early on and as I think about that, I think that’s just a lot of opportunity for the business. So that would be my – in terms of some other things that can offset some of the drag, the most important thing for a business like ours, whether its Victoria’s or Bath & Body or Bendel any of them is to have great merchandise. That is a very clear point of view about the customer to have compelling regular flow of new key items that were she says I just got to have that, so that’s the most important thing. And we've got a lot of talented people working on that in all the major categories of the business at Victoria’s.

And then the other thing I would mention because we believe strongly that it is a driver of sales growth and comp growth over time is continuing to improve our in-store selling and our in-store customer experience. And we've made some progress on that front. We've been talking about it as you know for a number years and we've laid out, our core ideas if you will, but we would share a view that, that there is ongoing meaningful opportunity to drive sales growth through continued improvement in the customer experience for our business, so and that’s just another category of opportunity for us.

And maybe lastly, and Nick's spoken a lot about this, but into the corollaries, Victoria’s as well, when you get the store environment right and Nick's talked about the result of remodelled Bath & Body and Victoria’s has some pretty compelling store designs. That aspect of the experience is also very powerful in these categories and another driver of sales growth in these businesses.

Matthew Boss

Great. Best of luck.

Stuart Burgdoerfer

Thank you.

Amie Preston

Thank you. Next question please?

Operator

Yes. Your next question is from Ike Boruchow from Wells Fargo. Please go ahead.

Ike Boruchow

Hi, good morning everyone. I guess Stuart, just a quick one, just looking through the segments in little bit more detail, can you help parse out some of the moving pieces in the other segment? Just because the losses I think came way down in the Q2 and now they are higher again in Q3 this year. So just curious what exactly is driving those quarterly puts and takes and how to talk about Q4 I'm not sure if that's your sense r what exactly we should, is moving that around?

Stuart Burgdoerfer

Thanks, Ike. The year-on-year driver in the other segment for the third quarter was the impact of a number of technology projects that are underway in the business and the expense portion of those projects that’s reflected in the other segments. So, in terms of the key year-on-year driver that’s what it was like in Q3.

Ike Boruchow

Got it. Thanks.

Stuart Burgdoerfer

Sure.

Amie Preston

Thanks. And I think we have time for one more question.

Operator

Certainly, your final question is from Oliver Chen from Cowen and Company. Please go ahead.

Oliver Chen

Hi, thank you. As you do engage in the edits to the promotional strategies would seem really prudent for the long-term brand equity. What's the interplay with that and just setting our expectations appropriately for traffic over the medium term. And as we think about omni-channel for the long-term Stuart, what are the features which will continue to integrate Bricks and Clicks whether that be buy online, pickup in store and ship from store and what are the key opportunities you see are that make sense for, materially continuing to drive a big and relevant part of the business?

Stuart Burgdoerfer

Thanks Oliver. In terms of promotional strategies and how they affect traffic, big subject obviously, and as you appreciate Oliver a lot of things drive traffic and I would even start with we believe and I'm not trying to avoid your question, I'll get to it but just trying to share with you how we think.

We believe we have a lot of sales growth opportunity with the traffic that we have, that you with the steady-state amount of traffic even as strong as our conversion rates are and I think they are among the best in specialty retail. The fact is, a lot of people that come into our stores that for whatever reason were not able to convert to buyers and again attract our conversion rates are very high, but there's more that we can do with the traffic that we have.

So I would start there. Separately, promotional strategies are about striking balance on a number of fronts and certainly can and do drive traffic into the store. And through some of that promotional changes that we've implemented at Victoria’s we're continuing to evaluate the interplay between driving trial in key categories and the dynamic you're asking about which is driving incremental traffic into the store.

And I think we're learning more about that and again we'll seek to strike the right balance. But the most important thing as it relates to promotional strategies is to do things that are healthy for the brand and don't damage the brand over time, but lot of balances to strike in the short-term.

With respect to digital, Oliver, in terms of like what's going to be new or different, as you know we've terrific digital businesses the grow for both Victoria’s and Nick can comment about BBW very, very strong. The biggest opportunity for us in digital beyond continuing to grow the existing platforms well that are primarily focused on North America is to really go after the international opportunity for digital.

So as opposed to one or two additional features for a consumer experience, the big opportunity for us in digital beyond what we're already doing is to more aggressively go after that business outside of North America.

Oliver Chen

Thanks.

Stuart Burgdoerfer

Hey Oliver. If I bring it up just slightly higher level for us, we are constantly trying to figure out and indeed we are evolving the brand. And so the primary focus for us is how do we get the brand to next. And on the assumption that we fundamentally have the identical assortments online and in stores on the identical pricing strategy that allows us to really go back to basics, which is the number one goal for us online is to be able to market the brand, drive traffic, use it for storytelling and really use it for launching and information sharing of new products especially, if you go back to the beginning which is we're trying to continue to evolve this brand.

That doesn’t negate our responsibility to figure out, how to grow the business and as you've been able to see we've continued to see very, very healthy growth in that and we will continue to invest in different formats, different models and different testing to ensure that we can do both of those. So it is really important channel, but is very much a complementary channel and very much used to market the brand.

Oliver Chen

Thanks for this transparency, best regards for Holiday.

Stuart Burgdoerfer

Thank you.

Amie Preston

Thanks so much, Oliver. That concludes our call for today. We want to wish everybody a happy Thanksgiving and happy holidays. Thanks.

Operator

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

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