Operator: Good morning. My name is Nicole, and I will be your conference operator today. At this time, I would like to welcome everyone to the Limited Brands' Fourth Quarter 2012 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.
I will now turn the call over to Ms. Amie Preston, Chief Investor Relations Officer for Limited Brands. Please go ahead.
Amie Preston - IR: Thanks Nicole. Good morning, everyone, and welcome to Limited Brands fourth quarter earnings call for the period ending Saturday, February 2, 2013.
As a matter of formality, I need to remind you that any forward-looking statements we may make today are subject to our Safe Harbor statements found in our SEC filings.
Our fourth quarter earnings release and related financial information, including any non-GAAP or adjusted financial reconciliation tables, are available on our website, limitedbrands.com. Also available on our website is an investor presentation, which we will be referring to during this call. This call is being taped and can be replayed by dialing 1-866-NEWS-LTD. You can also listen to an audio replay from our website.
Stuart Burgdoerfer, EVP and CFO; Sharen Turney, CEO, Victoria's Secret; Nick Coe, CEO, Bath & Body Works; and Martin Waters, President of International are all joining us today. After our prepared comments, we will be available to take your questions for as long as time permits, so that we can speak with as many as callers as possible, please limit yourself to one question.
All of the results discussed on this call are adjusted results and exclude the one-time items that are described in our press release. Also as you know 2012 was a 53-week year. All of the sales dollars, margin and operating income results discussed are on a 14 to 13-week basis for the quarter and 53 to 52 week basis for the year. Comparable store sales and direct sales dollar increases or decreases are on a comparable calendar period, 53 to 53 weeks for the year and 14 to 14 weeks for the quarter.
Thank and now I'll turn the call over to Stuart.
Stuart B. Burgdoerfer - EVP and CFO: Thanks Amie and good morning everyone. Our overall fourth quarter results were good if not great. Performance was more inconsistent than what we would like. And while earnings were at the high end of our initial guidance we had hoped to better.
Fourth quarter adjusted earnings per share were $1.76 versus $1.50 last year.
Excluding earnings per share related to the extra week of about $0.08 this year EPS increased by about 12% in the quarter.
To take you through the fourth quarter results as detailed on Page 4 of the presentation, net sales were $3.856 billion which includes about $125 million for the 53 week versus $3.515 billion last year and comps increased 5% on top of 7% last year.
The gross margin rate increased 130 basis points to 45.2% driven by an improvement in the merchandise margin rate and buying and occupancy expense leverage. The SG&A rate increased by 10 basis points.
Operating income dollars increased to $907.8 million excluding the extra week this year, operating income dollars increased by about 10%.
As noted in our press release we had two non-cash impairment charges that are excluded from these results.
Turning to our full year results on Page 6 adjusted earnings per share were $2.92 versus $2.60 last year. Excludin. the extra week this year, in 2011 profit related to the sold third-party apparel sourcing business, earnings per share increased about 13% for the year. Net sales increased to $10.459 billion, and comps increased 6% on top of 10% last year. The gross margin rate increased 300 basis points to 42.3% and was positively impacted by the sourcing business sale by about 250 basis points.
Absent this impact, the gross margin rate would have increased 50 basis points driven by buying and occupancy leverage and a roughly flat merchandise margin rate. The SG&A rate was negatively impacted by the sourcing business sale by about 170 basis points. Absent this impact, the SG&A rate improved by about 10 basis points.
Page 7 details our full year operating income results. Our full year adjusted operating income rate was 16.3%, improving by 140 basis points which includes a favorable impact from the sourcing business sale of about 80 basis points. We continue to make progress towards our goal of an operating income rate in the high-teens.
I know there's ongoing interest in the drivers of results in the other segment, so I'd like to provide some additional clarity. The other segment consists of our international operations; our sourcing function, Mast Global and Henri Bendel and corporate overhead. For the full year, other segment revenue consisted of the following. Sales from our Company-owned Bath & Body Works and Victoria's Secret stores in Canada and the U.K. totaled roughly $370 million, an increase by about $105 million versus last year, driven primarily by new store openings.
La Senza Canada sales were $283.6 million versus $335.7 million last year, down above 15% primarily due to store closures in Canada. Canadian store comps decreased 2%. Revenue from our international franchise and wholesale business including our Victoria's Secret Beauty and Accessories stores, our Victoria's Secret full assortment franchise stores, our Bath & Body Works franchise stores, our La Senza franchise stores and Mast Global sales through our international partners all of that was about $250 million compared to approximately $200 million last year.
Our Henri Bendel recorded sales of about $75 million, 25% above last year. And finally, 2011 includes $701 million of sales related to the sold third-party apparel sourcing business. The other segment operating loss is driven by corporate overhead expense and the loss from La Senza and Henri Bendel business which is partially offset by operating income from Mast and our other international businesses.
The increase in the 2012 other segment operating loss of $37.8 million was primarily the result of the loss of 2011 profit from the sold third party apparel sourcing business. Excluding the impact of this sale, the profitability in the other segment would have increased by about $5 million.
Turning to the balance sheet on Page 8, retail inventories per square foot at cost ended the quarter up 4% versus last year. Free cash flow in 2012 was $763 million and capital expenditures were $588 million.
We repurchased 0.3 million shares of stock in the fourth quarter for $14 million at the end of the year we had $239 million remaining under our $250 million share repurchase program.
In 2012 we returned $2.1 billion to shareholders through share repurchases, special dividends and our ongoing regular dividend. We also just announced a 20% increase in our regular annual dividend to $1.20 per share.
Turning to Page 11 of the presentation our forecast for 2013 reflects actions we are taking to drive growth in our business, growth in Victoria's Secret real estate, increased store selling payroll, driven by a greater mix, the full time associates and increased training. And investments in international infrastructure and free opening cost for new stores. These actions will drive sales growth, but will result in near term expense pressure, both in buying and occupancy and SG&A.
Our first quarter earnings forecast reflects a low single-digit comp increase which reflects a February comp forecast in line with our previous guidance for a low single digit comp increase. We expect that the first quarter gross margin rate to be down to last year driven by roughly flat merchandise margin rate in buying and occupancy deleverage.
We expect some deleverage in SG&A expense reflecting continued growth in store selling expense and marketing as we continue to invest the increased conversion and improve the customer experience.
However I will reiterate our commitment to growing expenses slower than sales. While we continue to believe that these are important investments that drive sales, we will force tradeoffs in non-customer facing areas of our business. We expect non-operating expense in the first quarter to be between $75 million and $80 million. We expect earnings per share between $0.40 and $0.45 in the first quarter against last year's adjusted $0.41 result. We expect to end the first quarter with inventory per square foot of mid-single digits to last year. This forecast reflects the calendar shift that will increase inventory at quarter end by a couple of percentage points.
For the full-year, we are projecting positive low-single digit comps. Total sales growth will be about 2 points higher in comps due to growth from square footage and our international business. We expect our full-year gross margin and SG&A rates to be about flat to last year. Non-operating expenses for the year are projected between $290 million and $295 million consisting principally of interest expense.
Before any discrete items, our tax rate will be approximately 38%. We are forecasting weighted-average shares of about $296 million in the first quarter and the full-year. Assuming all of these inputs, we expect adjusted earnings per share for the full-year 2013 to be between $2.92 and $3.12 per share. We are projecting 2013 CapEx of about $650 million. The increase in CapEx versus last year is attributable to increased real estate investment at Victoria's Secret, primarily the increased square footage for PINK. As we previously noted, only about 20% of our current stores carry the full PINK assortment.
As detailed on Page 14 of the presentation, Victoria's Secret square footage will increase by about 3.5% this year, driven by expansions of existing VS stores and the opening of about 50 new PINK stores. Total Company square footage will increase by just under 3%
as growth in VS and our company-owned international locations is partially offset by a slight decline at Bath & Body Works. It's also important to note that the square footage that we're adding is significantly more productive in that we are closing.
As I mentioned earlier, this activity will put more pressure on volume and occupancy expense in the near term including accelerated depreciation on stores that are remodeled before the end of their lease term. As we shared at the update meeting in October these projects are generating returns in excess of 30%. We will continue to closely monitor the results of this real estate activity.
Turning to liquidity, we expect free cash flow in 2013 of about $650 million to $750 million. We remain committed to returning excess cash to shareholders through a combination of share repurchases and dividend. Our free cash flow and cash position along with the additional availability under our revolving credit facility results in very strong liquidity, which is more than sufficient to fund our working capital, capital expenditures, dividends and any other foreseeable needs.
Thanks and now, I will turn the discussion over to Sharen.
Sharen Jester Turney - CEO and President, Victoria's Secret: Thank you, Stuart, and good morning everyone. Our fourth quarter results are detailed on Page 17 of your presentation materials. Victoria's Secret segment earned record operating income in the fourth quarter as we continue to focus on our key priorities growing in our core categories, investing in select key growth opportunities and emphasizing speed and agility.
In the stores channel, fourth quarter comps were up 3% on top of 12% increase last year driven by growth in lingerie and PINK, while beauty was about flat. Our holiday performance although above last year met our expectation. In the past several years customer traffic has continued to shift into that Thanksgiving Day weekend and post-Christmas time period. Our November results were good driven by a very strong Black Friday. Mall traffic throughout the December was very soft and more mall retailers responded with very aggressive promotion. Conversely we choose to protect our brand and did not pursue an aggressive promotional strategy as a result we likely did not get our fair share of mall traffic which resulted in flat to simple comps on top of 11% comps last year.
The business was very strong in January delivering an 8% comp on top of 17% last year driven by strength in both semi-annual sales and full price selling. In the direct channel fourth quarter sales decreased 1% on a 14 week to 14 week basis as strength in bras, PINK and sport was offset by lower promotional selling during holiday and softer apparel sales.
Our fourth quarter merchandise margin dollars increased across both channels with mixed merchandise margin rate performance. In the stores channel the merchandise margin rate decreased versus last year driven primarily by beauty.
In our direct channel the merchandise margin rate increased significantly driven by increased full price selling.
Turning to our full year results on Page 18 Victoria's Secret stores comps increased 7% and Victoria's Secret direct comparable sales increased 1.
Total segment sales increased to $6.6 billion the merchandise margin rate decreased versus last year in the stores channels, but increased in our direct channel. Operating income margin in dollars increased in both channels with operating income dollars of 10% across the segment.
Looking ahead to first quarter, we will continue to focus on core categories bras and panties; in addition, we are excited by our spring assortment, we will continue to focus on the balance between driving traffic in our stores and maintaining the integrity of our brands while also working to balance margin dollar growth with rate. Our inventories are well positioned, allowing us to react as appropriate and to optimize our business.
Additionally, consistent with Stuart's earlier comments regarding capital, we are investing in real estate and customer facing initiatives to support current and future growth. In closing, we are well positioned and are optimistic about our opportunity. We will continue to focus on executing with discipline, simplicity and speed. Thanks.
Now I'll turn the discussion over to Nick.
Nicholas P. M. Coe - CEO, Bath & Body Works: Thank you Sharen and good morning every one. At Bath & Body Works we are pleased with the results of the fourth quarter. We delivered sales and operating income growth versus last year's record performance. Comps increased 7% against 3% last year driven by the customer's response to newness in both form and fragrance in our three key categories; our Signature Collection product line, the soap and sanitizer business and our home fragrance assortments. The customer also responded well to the increased presence of our seasonally relevant fragrances and forms.
We were pleased with the success of both holiday and our January semiannual sale. The read and react nature of the business and strong customer responses to the assortment throughout the fall season contributed to less clearance selling. We were also pleased by the launch of Forever Red during the quarter
Detailed on Page 19 of the presentation total, sales for the 14-week quarter were $1.2 billion, up 11% or $122 million versus the 13-week quarter last year. For the quarter, operating income was $399 million, up $50 million or 14% from last year. Operating income as a percentage of sales was 32% in the quarter of up to last year. Our gross margin rates in the quarter were up to last year driven by the increase in the merchandise margin rates. The increase in the merchandise margin rate was driven by less clearance selling.
SG&A expense also leveraged versus last year. We finished the quarter with energy levels up modestly to last year, we continue grow our inventories slower than sales year-over-year while maintaining a high in stock positions. As noted on Page 20, the fiscal 2012 operating income was $604 million, up $91 million or 18% versus last year.
Operating income as a percentage of sales was 20.8% up 160 basis points to last year. Gross margin rate was up to last year driven primarily by buying and occupancy leverage. SG&A expenses also leveraged versus last year. The BBW direct channel also delivered strong sales and operating income growth versus last year in the quarter.
Sales for the full year were over $200 million and had a strong increase versus last year. Looking ahead for the first quarter, we will continue to introduce newness and innovation in both foam and in fragrance. In February, we began the month re-launching Forever Red, our most luxurious signature collection fragrance ever in order to capitalize on Valentine's Day. We will finish the month in our fresh picks market theme.
We're excited about the assortments and we will continue to manage expense and inventory conservatively. Our overall focus continues to be about getting faster and better understanding and satisfying our customers' needs while providing them with a world-class in-store experience. In addition to focusing on products and fragrance launches we will continue to test and read the results of new products offerings and promotional strategies while maintaining flexibility in our inventories to react quickly to the customers' preferences.
With that I'll turn the discussion over to Martin.
Martin Waters - President, Limited Brands International: Thanks Nick and good morning everyone. My comments this morning will focus on our international businesses. As you know our opportunity for international growth is significant. Given the leadership positions and awareness of our brands and the success we've seen from our early efforts. We feel good about the strategic choice we made to be steady and purposeful to pursue to a test and learn philosophy that reflects the DNA of our company.
We made good progress in the fourth quarter and are detailed on Page 15 of your presentation we ended the year with 745 international stores. At Victoria's Secret International we continue to be pleased with performance of our full assortment stores. We now have 26 stores in Canada, and will open another 8 stores this year.
In the U.K. we continue to be very pleased with our London flagship store on Bond Street and with the London Strafford store. They both had a very successful holiday season and we plan to open three more stores in the U.K. this year.
Elsewhere in the world we now have three VS core assortments franchise stores opened in the Middle East under our partnership with Alshaya. We are delighted with the early results there and tentatively will open another two to four locations this year.
Our Victoria's Secret beauty and accessories business continued to progress well, with 108 locations opened at the end of the year we will add another 70 to 100 stores in 2013.
In Bath & Body Work International, we are now up to 71 stores in Canada and 38 stores under our franchise partnership with Alshaya. We continue to be very pleased with the performance of BBW outside of the U.S.A, and in 2013 we will open another eight stores in Canada and another 20 or so with Alshaya.
Turning to La Senza, we are beginning to see some signs of progress within that business. Comps in Canada were flat in the fourth quarter despite the challenging December, and our merchandise margin rate was up slightly to last year. We continue to be encouraged by the repositioning work we are engaged in, creating a distinct and compelling customer proposition, but is globally appealing and highly scalable around the world. Our franchise partners opened 36 new stores in 2012 and plan on opening another 10 to 20 net stores in 2013.
So that's an update on international as I know you know we're not dependent on international for growth. Our overarching priority is the strength of our brands in North America.
With that I'll say thank you and turn it back over to Amie.
Amie Preston - IR: Thanks Martin. That concludes our prepared comment and at this time we'd be happy to take your questions. Just to remind that please limit yourself to questions. Nicole?
Operator: Lorraine Hutchinson, Bank of America Merrill Lynch
Lorraine Hutchinson - Bank of America-Merrill Lynch: Stuart, in January you had put a press release outlining your goals for a double-digit earnings growth, and then the guidance doesn't quite reflect that. Can you just talk about some of the puts and takes that will make this year below your longer term growth plan?
Stuart B. Burgdoerfer - EVP and CFO: Thanks for the question. We do have a view within the business that operating income dollars should grow in the low teens, and importantly starting with the year, we just finished, on a 52-week basis we grew operating income 10%. So, we were kind of right in the game if you will. The second thing I would say is that for the last four or five years, we had intentionally planned our business conservatively and we think about that within the business in terms of how we manage inventory and expenses and capital spending and then we work hard to chase to and deliver a better result and we've been able to accomplish that in relation to our beginning of year views internally and externally for the last three or four years. So, the summary would be, 2012 we're in that range, '13 we're going to work like we have to be in that range, but as we start the year consistent with how we run the business and consistent very specifically with the guidance that we put out a year ago, operating income growth rates assumed in the guidance are little lower than that, but we're going work hard to exceed that result. In terms of some additional put and take, in my remark and Sharen's remarks, we commented on the fact that we are investing to drive growth in our business, and that puts some pressure on expense lines. I also remarked deliberately so that we're going to intensify our work internally as the management to force trade us on those investments with the focus on non-customer facing activity. So, we don't work hard to deliver what we put out in January and we're starting the year with a conservative mindset that really is no different than how we run the business over the last three or four years.
Operator: Dana Telsey, Telsey Advisory Group.
Unidentified Analyst: It's (indiscernible) for Dana. Just thinking about the fourth quarter hind sighting kind of what you went through this year. Is there anything that you feel like you would be doing differently next year just kind of keeping in mind your goals to maintain the inventory levels and how you think about it, coming off the holiday season?
Nicholas P. M. Coe - CEO, Bath & Body Works: I think one of the most important things for us to do is deeply hindsight the season to understand how the season came in, how we leveraged traffic and how we managed inventory. One thing we'll have to take into consideration as we go into next year is there is a shorter period from Thanksgiving to Christmas. So how we get our heads around planning for that and making sure that we are proactive in terms of being ready for it is going to probably be the most important thing to look at. While at the same time continue to stay as close to the customer as we possibly can and leverage our react capabilities.
Sharen Jester Turney - CEO and President, Victoria's Secret: We spent a lot of time hindsighting this past holiday and we are able to gain lot of interesting insights and as we think about how the business has changed that, Thanksgiving, Black weekend Friday and then the strength that we've had in December. Is how do we have to really rethink our entire December and although we've been very good at adding newness, it's really about traffic and keeping the customer interested in that time frame. We have a lot of things that we are thinking about pretty radically that I am pretty excited about and just a little bit of information on that as you know our fashion show this year it's always going to be the first week in December and I think we have even more opportunity to use that vehicle in driving traffic as we think about next holiday. We will continue with the rigor that we have on our (speed) initiatives, on testing, keeping Lean inventories and managing our expenses.
Operator: Brian Tunick, JPMorgan
Brian Tunick - JPMorgan: I guess one for Sharen and one for Stuart. I guess, Sharen, on the beauty side of the business, I think Suzy joined back in November, so we were curious what is the reasonable timetable to expect changes at the beauty business and will repositioning hurt your first half gross margins? Then Stuart thanks for the color on the other segment, but we were curious on the profitability of the international business. Today, maybe either versus your domestic business or maybe long-term what are some goals there?
Sharen Jester Turney - CEO and President, Victoria's Secret: I'm very excited about our beauty business. It's a big profitable business for Victoria's Secret. It just hasn't grown the rate that we'd like it to do. I think that through the repositioning that we've already started that I'm pretty confident by the back half of this year and I think maybe you might see some even in late spring, but predominantly in the back half, you'll see some different changes for us within the beauty area.
Stuart B. Burgdoerfer - EVP and CFO: Brian, with respect to the international business and profitability of that, the international businesses in aggregate will contribute to earnings growth in 2013 to some extent and as you would imagine or expect that contribution would be even more significant in 2014. You'd also recognize that we have a number of different businesses there today have different profit characteristics, but certainly as they scale and as we turnaround the La Senza business the international business in total should be at or frankly above the Company's operating income rate. But we've got work to do, so on the La Senza business, we're working at turnaround and that's an important part of today's results and as Martin said, sometime the progress and there are investments that we're making in the international business whether it's preopening cost on company-owned stores or investments in technology and other infrastructure that go against the addition in 2013. But it will contribute to earnings less than '13, more in '14, and in the long term will be at or above the overall company's rate.
Operator: Kimberly Greenberger, Morgan Stanley.
Kimberly Greenberger - Morgan Stanley: Stuart, I just wanted to follow-up on Brian's question with regard to the international profitability in the flow through rate, I know that as you've been building out your international infrastructure over the last three years, you've incurred a lot of expenses on the front end and I'm wondering are we at the point here in your growth cycle internationally where the incremental revenue in 2013 and 2014 will actually start to flow through at that – you just – sort of accretive level meaning above your existing operating margin rate or is that more of a 2014 and beyond event?
Stuart B. Burgdoerfer - EVP and CFO: It's a tough question to answer Kimberly in the sense of a lot of that will hinge – a meaningful amount of that will hinge on the results that we generated in Canada with La Senza, but apart from that, I would say that the profit contribution on the incremental on the margin would be roundly in line with the total company operating income rate which is different than a store based flow through, in a store-based flow through and in a scale business you might get 25% to 30%, 35% to 40% flow through on an incremental sales dollar, it won't be at that level. But apart from the variability in terms of Canada we'll have profit contribution in '13 but not at the rate that you'd see in bricks and mortar business from comp sales.
Operator: Erika Maschmeyer, Robert W. Baird.
Erika Maschmeyer - Robert W. Baird: Sharen could you talk a bit about your strategy on the apparel side at direct, what categories, are possibly non-core and could be based out, I guess how we should be thinking about that business evolving throughout the year and then Stuart just a follow-up on your guidance. It seems to imply that there'll be a greater drag from your growth initiatives in the first half of the year and much in the back half of the year likely as you recognize the benefits from those initiatives. Is that a fair way to think about it? Thanks.
Sharen Jester Turney - CEO and President, Victoria's Secret: On the apparel strategy as we think about it for direct our first priority is how do we align our apparel strategies with the things that we are already doing as a brand. Therefore when we think about our supermodel essentials. We think about fort, we think about the entire knit category that is primarily the focus, when we think about how we will position those businesses around beach lifestyle. We have a very large swim business not only in the direct business, but also in the store channel. So another piece of the apparel business is really surrounding the beach lifestyle that is out there. The categories that we will probably be exiting is more in a woven kind of work I think it's just irrelevant in terms of what's happening in the world today. So, those are the things were not in the apparel strategy for Direct.
Stuart B. Burgdoerfer - EVP and CFO: Your intuition is right that the pressure on P&L is more concentrated in the first part of the year than on the year-on-year basis than it is in the back half of the year.
Operator: Jeff Stein, Northcoast Research
Jeff Stein - Northcoast Research: Stuart, a question on Victoria's Secret real estate. You've talked about growing the real estate 25% over a period of time and this year it looks like it's just a couple points. So, I'm wondering what kind of ramp should we be looking at over the next couple of years to get to that 25% increase and over what period of time?
Stuart B. Burgdoerfer - EVP and CFO: For Victoria's Jeff – for Victoria's Secret specifically, the square footage growth is between 3% and 4% for 2013, and with the illustration that we shared in October we continue to believe in. So the pace of that may accelerate in future years, but we're going to get about 4% growth in square footage for Victoria's in '13 and that's net of some closure activity and we'll continue to monitor as I mentioned and there's a lot of opportunity for us. The good news is, as we see it is, for the first time in our Company in a while we're going to have a net contribution in terms of square footage and then that spread will become meaningful as we outlined in '13 and we think those investments in that growth is good growth.
Operator: Jennifer Davis, Lazard Capital Markets
Jennifer Davis - Lazard Capital Markets: First Sharen and Nick let me say we're excited about your spring assortments also and the stores look great. But my question is for Share regarding beauty, could you remind us what percent of Victoria’s Secret sales beauty is and how much higher the margins on beauty are versus lingerie and how long it's been underperforming? I guess, I'm really getting at is the potential upside to sales and really the margins with improvement in the category.
Sharen Jester Turney - CEO and President, Victoria's Secret: Across the 1,000 store-fleet it does vary a lot but on average it's around 20% of the total business and on the margin rate perspective, the difference is about 200, 300 basis point difference between the margin rate. When I think about the Victoria’s Secret beauty business, beauty has not benefited from any of the real estate strategies and basically over the last three years, we've actually taken and shrunken the beauty space. At one point in time we felt like we over spaced it, we actually moved it from the front of the store next to the cash trap and we've learned a lot about that. And in some stores we've probably got it too small, so we are actually of course correcting that within our investment in real estate as we go forward. I think really over the last 24 months has really been the most disappointing for us in beauty. We have had good growth, but previous to that and as we go forward, I think that it needs to be able to keep pace with our 10% goal of increasing Victoria’s Secret each year.
Operator: Oliver Chen, Citigroup.
Oliver Chen - Citigroup: Regarding your opportunity in terms of hoping to do better, could you just prioritize the nature of the opportunity between the nature of your promotions and your marketing and your store execution there, and planning into that versus product, and then just as a follow-up in terms of the modeling question, is it right to assume that the spread between comp and total revs will be considerate with your square footage growth are there other factors that we should consider given that you are adding more productive store square footage versus taking less productive thanks.
Amie Preston - IR: I'm guessing that your – first part of your question is referring to the fourth quarter opportunity to do better there.
Oliver Chen - Citigroup: In terms of the learning and thinking about the findings there, sounds like there was an environment such that, there could have been an opportunity for even more plans, promotions in terms of competing in the new environment and going forward how that plays versus product tweaks?
Sharen Jester Turney - CEO and President, Victoria's Secret: I believe in Victoria's Secret that we really didn’t have assortment misses in December except for in beauty. And I think that's what we've been talking about post correcting. When I think about the three weeks in December which was, or four weeks in December this year was the primary miss for us, in terms of getting our fair share of traffic I do believe with the nature of the business being so highly promotional that we have to rethink how we drive traffic to our stores. When you talk about the operations of the stores, I believe that we have made great progress you can see it through our conversion rate that we are continuing to climb and grow. so I think adding all of those things in terms of better assortment always we can new and improve our assortment thinking about how to engage with the customer in terms of driving her to the store, and yes it maybe through some promotions, but there's also our great (indiscernible) piece that we do, so we're rethinking how we go about that and thinking about using the fashion show all the way up at through Christmas.
Stuart B. Burgdoerfer - EVP and CFO: The spread on between comps and total sales growth we're estimating to be about 2 percentage points for the year and that factors in three or four main variables including the timing of store openings, and part of your effective store openings.
Operator: Jennifer Black, Black & Associates.
Jennifer Black - Jennifer Black & Associates, LLC: Also let me add my congratulations. I think this question is for you, Sharen. We've seen the new day collection of PINK and we wondered how many store this line is in, it appears that you have a nice opportunity to gradually increase prices and I would love your thoughts and it also appears you have a few bras that are catering to even a younger customer?
Sharen Jester Turney - CEO and President, Victoria's Secret: The date bra is in – it was a test for us and it actually did extremely well, so we'll be rolling the date bra to all stores this spring season and we're excited about the opportunity. And I imagine what you are talking to in terms of when you are thinking about the younger assortment in bras is that we've made a big statement in our bra add, our lacey bra add the really great use of layering pieces and not only are they a fashion item, but they are also a great first bra for some of the younger customers. So we are absolutely capitalizing on that as we go forward into the spring season.
Operator: John Kernan, Cowen and Company.
John Kernan - Cowen and Company: Another follow-up on the productivity of this square footage, you are adding Stuart, you talked about this obviously higher, how much more productive from a sales per square foot perspective are these new stores you're adding? And how does this sales productivity of the 20% of the store based, it carries the full PINK assortment compared to the other store base? Then just a quick question away from the stores and on the capital structure, you took out a significant amount of debt both in the first quarter of 2011 and 2012 and funnel that rate back to shareholder. As you look at your capital structure, how do you think that could evolve in 2013?
Stuart B. Burgdoerfer - EVP and CFO: First point on overall productivity of new square footage versus the productivity of stores that were closing is an overall assumption that productivity of that – those new stores or new square footage is between two and three times, I'm speaking for the Company total between two and three times, the productivity of the stores were closing. With respect to Victoria's Secret stores that have the full PINK assortment versus balance the fleet and so on, it tends to be the case that the stores that have the full assortment are in the higher volume malls and venues and as a result the productivity in those stores is very good and would be as a general matter above the Company average. With respect to capital structure, you are right, obviously, the facts of the facts, in that we added leverage to the business in the last couple of years and provided you know an additional source of cash for distribution to shareholders. As we looked at our leverage and we've talked about consistently we're not formulaic about it with that said we are in the mid-3s in terms of debt to EBITDA and adjusted debt to EBITDA and we think that’s about right we do monitor the capital markets. We think about maturity profile cost of debt et cetera. Importantly that is something that ultimately is evaluated with our Board of Directors and they obviously have the final voice on that, but we think we've got it about right as we sit here today with about $4.5 billion of balance sheet debt, but what we'll continue to look at it from time to time as we have over the last couple of years. With all that said apart from capital structure this business generates a lot of cash. Just inherently from the operating results of the business and we outline what we think the free cash flow will be for the business this year and that will be an ongoing source of funds to return to shareholders.
Operator: Janet Kloppenburg, JJK Research.
Janet Kloppenburg - JJK Research: Just a couple of questions, Sharen. I think that some of the pressure of markdowns from the beauty category hurt your ability to leverage your operating margin even more than you did in fiscal '12 and I am wondering if you think that, there'll be less pressure for markdowns there and how inventory is discontinued beauty product versus last year. And Stuart apologize if I – I was on another call and got on late. But the SG&A rate for the fourth quarter came in higher than expected because of not listening or there are some incremental spend there that pushed that level higher?
Sharen Jester Turney - CEO and President, Victoria's Secret: We are excited about our beauty assortments for spring and we're being very conservative as we go into the spring season with beauty. Right now we are planning on a lot of new liquidations. As you know, we are a fashion business. We are bringing in fashion comparable or a little bit higher to last year. As long as that we continue to get the customers and the acceptivity of those assortments I don't believe that we'll have as much margin erosion as we did in the holiday season and it's something that we manage and look at every day.
Stuart B. Burgdoerfer - EVP and CFO: With respect to the SG&A rate as we put our guidance in the beginning of the quarter we expected it to be roughly flat. It was up 10 basis points and that trying to be flipping it all, but it's pretty close to roughly flat and nothing significant to call out in terms of the driver of the year-on-year change or something versus our beginning.
Operator: Roxanne Meyer, UBS.
Roxanne Meyer - UBS: Let me add my congratulations for a good quarter. I'd just have two follow-up questions; one for Sharen. You talked about the need to maybe think about driving traffic and balancing your income growth with the rate growth and I'm just wondering, I just want to understand are you looking potentially to change the way that you promote just for the holiday or really pick a new approach for the full year as early to promotions and Gift with Purchase? I know that last year you had increased it, the amount of Gift with Purchase just to be able to meet demand that was out there, have you maxed out on that, just wanted to get a better understanding of that strategy?
Sharen Jester Turney - CEO and President, Victoria's Secret: Four. No, we have not maxed out on the different purchase opportunities. In fact as we are launching one right now with our 'Feel Fabulous' launch for the month of February, it's where we're going somewhat faster than we can keep up with it. So, I do not believe that we have maxed out on that. I believe that in the – I think that all retailers are going to be re-thinking the December. I think as things have changed so dramatically as you think about how big Black Friday has become, where Victoria’s Secret did over $100 million in that one day and how big that we came through Cyber Monday, and then what you are seeing for the last four or five years is now a drop in those three of four week prior to December and then you see a huge lift the week after Christmas into January. So, I think we have to say this paradigm is here to stay and how do we want to manage that, how do we want to think about that and I think we have to think about it on a more forward basis not just of everything that we've done in the past and become deeper in our discounts or become deeper in our promotion. I think we just have to think about that time differently in a whole new way.
Roxanne Meyer - UBS: So you are just more focused on the holiday strategy than versus a new approach necessarily for year around?
Sharen Jester Turney - CEO and President, Victoria's Secret: I mean we're always looking at new ideas and new opportunities year around whether it's with our loyalty program whether it's with our – which we're actually launching our new credit card program this year, so we're looking – we're always looking for new opportunities. I think that as we're talking about fourth quarter and talking about what insights did we give from our hindsight, that's where we're primarily focused right now.
Roxanne Meyer - UBS: Then just quickly, I know you've addressed your apparel strategy for the direct-to-consumer business and potentially phasing out of certain classifications, I'm just wondering how we should think about the impact both in 2013 and over the next three years from both the sales and profitability prospective as you do get rid of some of these underperforming categories?
Sharen Jester Turney - CEO and President, Victoria's Secret: We are hoping with all the strength in our other core categories, whether it's the PINK growth, whether it's the opportunity in beauty which we have not maximized in the direct channel with actually putting even more emphasis on our lingerie categories that by the back half of this year we'll be able to offset any decrease that we might have in the apparel businesses. Those categories have different margin characteristics, although our apparel business is very, very profitable, our intimate business and our PINK business has a higher margin characteristics than just the apparel businesses. So I think that hopefully we'll be able to see some improvement if that come in for the fall season.
Operator: John Morris, BMO Capital Markets.
John Morris - BMO: Nick and Sharen, Nick or both of you really can talk a little bit more about the opportunity for the spring season in terms of product versus last year. I know we heard a little bit from Sharen on – in particular on beauty and on PINK, but maybe if Sharen can tailor her comments to the opportunity on spring in the core assortment and then Nick, if you could give us some more color there as well on the opportunity ahead for the spring season product?
Sharen Jester Turney - CEO and President, Victoria's Secret: We are very excited about our product assortments for the spring season. If I started with the lingerie category within our bras and panties, we have new programs that are launching this spring season, they have been tested, they have – we believe very strongly that we have the right product. In the panty category we're getting great new results from our new fashion deliveries. All the testing that we had done, we are actually introducing four new silhouettes in panties, so I think that we're very solid in terms of the lingerie category as we go forward into the spring season. We're looking at flowing newness. We're also ramping up our ability to test and read and react. We actually leaving even more open divide than we have in the past and especially in the PINK apparel category, so I feel confident that we have the right assortment and the right ability if the customer votes differently.
Nicholas P. M. Coe - CEO, Bath & Body Works: For us I think staying very, very focused on our three big categories, because we still fundamentally believe there's good growth opportunities that exist within that, couple of thoughts around that, as you know how do we continue to look for trade-up and elevation opportunities. So we continue to build the brand and integrate stores. We've done that well, I think in Signature, and I think we got opportunity to do it in the other two categories and we continue to see very strong product acceptance in our candle business both from the quality and from the fragrance perspective. Then, obviously, our ability to stay very, very close to the customer, and therefore our ability to read and react to what it is that she is liking and therefore push ourselves towards continued growth in full price selling.
Operator: Christian Buss, Credit Suisse.
Christian Buss - Credit Suisse: I was wondering if you could talk about your expectation for the ramp to full productivity of the square footage that you are adding in 2013 and beyond, so how should we think about when that square footage will become fully productive and accretive?
Sharen Jester Turney - CEO and President, Victoria's Secret: We'll go to Stuart.
Stuart B. Burgdoerfer - EVP and CFO: General when we open store for Victoria’s Secret and Bath & Body Works, they start with very good reaction from customers or expense growth footage. The PINK free standings are a little less productive than the Victoria’s business overall, but generate good return, but we don't have what I would describe as a big ramp-up period. There is timing of store opening to consider, but apart from once the store opens, they tend to do very well frankly from the first week, so there is not a ramp-up per se unless you're in an unusual circumstance, but typically we start out of the gate very strong.
Amie Preston - IR: Thanks Christian. Thanks all of you for joining us this morning and for your continuing interest in Limited Brands.
Operator: This concludes today's conference call. You may now disconnect.