XNYS:LTD Annual Report 10-K Filing - 1/28/2012

Effective Date 1/28/2012


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
______________________________________________________ 
FORM 10-K
______________________________________________________ 
(Mark One)
ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 28, 2012
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from                  to                 
Commission file number 1-8344
______________________________________________________ 
LIMITED BRANDS, INC.
(Exact name of registrant as specified in its charter)
 ______________________________________________________
Delaware
(State or other jurisdiction
of incorporation or organization)
 
31-1029810
(I.R.S. Employer Identification No.)
 
 
 
Three Limited Parkway, P.O. Box 16000,
Columbus, Ohio
(Address of principal executive offices)
 
43216
(Zip Code)
Registrant’s telephone number, including area code (614) 415-7000
______________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
Common Stock, $.50 Par Value
 
The New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ý    No  ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    ý
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý    Accelerated filer ¨    Non-accelerated filer ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
The aggregate market value of the registrant’s Common Stock held by non-affiliates of the registrant as of the last business day of the registrant’s most recently completed second fiscal quarter was: $9,222,266,781.
Number of shares outstanding of the registrant’s Common Stock as of March 9, 2012: 289,398,347.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Proxy Statement for the Registrant’s 2012 Annual Meeting of Stockholders to be held on May 26, 2012, are incorporated by reference into Part II and Part III.
 



Table of Contents
 
 
 
Page No.
Part I
 
 
 
 
 
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
 
 
 
Part II
 
 
 
 
 
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
 
 
 
Part III
 
 
 
 
 
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
 
 
 
Part IV
 
 
 
 
 
Item 15.
 



PART I

ITEM 1. BUSINESS.
General
We operate in the highly competitive specialty retail business. Founded in 1963 in Columbus, Ohio, we have evolved from an apparel-based specialty retailer to a segment leader focused on women’s intimate and other apparel, personal care and beauty categories that make customers feel sexy, sophisticated and forever young. We sell our merchandise through specialty retail stores in the United States (“U.S.”) and Canada, which are primarily mall-based, and through websites, catalogue and international franchise, license and wholesale partners. We are committed to building a family of the world’s best fashion retail brands, offering captivating customer experiences that drive long-term loyalty.
Victoria’s Secret
Victoria’s Secret, including Victoria’s Secret Pink, is the leading specialty retailer of women’s intimate and other apparel with fashion-inspired collections, prestige fragrances and cosmetics, celebrated supermodels and world-famous runway shows. We sell our Victoria’s Secret products at more than 1,000 Victoria’s Secret stores in the U.S. and Canada, through the Victoria’s Secret catalogue and online at www.VictoriasSecret.com. Additionally, Victoria’s Secret brand products are also available in Victoria's Secret Beauty and Accessories stores operated by partners under a franchise or wholesale model throughout the world.
Bath & Body Works
Bath & Body Works is one of the leading specialty retailers of home fragrance and personal care products including shower gels, lotions and antibacterial soaps. We sell our Bath & Body Works products at more than 1,600 Bath & Body Works stores in the U.S. and Canada and online at www.BathandBodyWorks.com. Additionally, Bath & Body Works brand products are available through franchise locations in the Middle East.
Other Brands
La Senza is a specialty retailer of women’s intimate apparel. We sell our La Senza products at more than 200 La Senza stores in Canada and online at www.LaSenza.com. Additionally, La Senza has approximately 300 stores in 30 countries operating under franchise and licensing arrangements.
Henri Bendel sells upscale accessory products through our New York flagship and 18 other stores, as well as online at www.HenriBendel.com.
Acquisitions and Divestitures
La Senza
In January 2007, we completed our acquisition of La Senza. The results of La Senza are included in the Other segment.
Express
In July 2007, we completed the divestiture of 75% of our ownership interest in Express to affiliates of Golden Gate Capital. From May 2010 through July 2011, we sold 10.4 million shares of Express common stock and contributed our remaining 7.2 million shares of common stock to The Limited Brands Foundation.
Limited Stores
In August 2007, we completed the divestiture of 75% of our ownership interest in Limited Stores to affiliates of Sun Capital. In June 2010, we completed the divestiture of our remaining 25% ownership interest in Limited Stores.

Third-party Apparel Sourcing Business
On October 31, 2011, we divested 51% of our ownership interest in our third-party apparel sourcing business to affiliates of Sycamore Partners. We continue to retain a 49% interest which we account for as an equity method investee.

1


Fiscal Year
Our fiscal year ends on the Saturday nearest to January 31. As used herein, “2011”, “2010”, “2009”, “2008” and “2007” refer to the 52 week periods ending January 28, 2012January 29, 2011January 30, 2010January 31, 2009 and February 2, 2008, respectively. “2012” refers to the 53 week period ended February 2, 2013.

Real Estate
 
Company-owned Retail Stores
Our company-owned retail stores are located in shopping malls, lifestyle centers and street locations in the U.S. and Canada. As a result of our strong brand and established retail presence, we have been able to acquire high-traffic locations in most retail centers in which we operate. Substantially all of our stores were profitable in 2011.
The following table provides the retail businesses and the number of our company-owned retail stores in operation for each business as of January 28, 2012 and January 29, 2011.
 
January 28, 2012
 
January 29, 2011
Victoria’s Secret Stores U.S.
1,017
 
1,028

Bath & Body Works U.S.
1,587
 
1,606

La Senza Canada (a)
230
 
252

Bath & Body Works Canada
69
 
59

Victoria’s Secret Canada
19
 
12

Henri Bendel
19
 
11

Total
2,941
 
2,968

________________
(a)
During the fourth quarter of 2011, we initiated a restructuring program designed to resize a portion of La Senza's store fleet. Under this program, we plan to close 38 underperforming stores. Of these stores, 12 were closed as of January 28, 2012. The remainder were closed during the first quarter of 2012. For additional information, see Note 5 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplemental Data.

The following table provides the changes in the number of our company-owned retail stores operated for the past five fiscal years:
Fiscal Year
 
Beginning
of Year
 
Opened
 
Closed
 
Acquired/
Divested
Businesses
 
End of Year
2011
 
2,968

 
40

 
(67
)
 

 
2,941

2010
 
2,971

 
44

 
(47
)
 

  
2,968

2009
 
3,014

 
59

 
(102
)
 

  
2,971

2008
 
2,926

 
145

 
(57
)
 

  
3,014

2007
 
3,766

 
129

 
(100
)
 
(869
)
(a) 
2,926

________________
(a)
Express and Limited Stores were divested in July 2007 and August 2007, respectively.
Franchise, License and Wholesale Agreements
In addition to our company-owned stores, our products are sold at hundreds of franchise and other locations throughout the world. We have agreements with unaffiliated partners to operate Victoria's Secret, Bath & Body Works and La Senza stores throughout the world. Under these agreements, third parties operate stores that sell our products under our brand names. We continue to increase the number of countries under these types of arrangements as part of our efforts to expand internationally.
Our Strengths
We believe the following competitive strengths contribute to our leading market position, differentiate us from our competitors, and will drive future growth:

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Industry Leading Brands
We believe that our two flagship brands, Victoria’s Secret and Bath & Body Works, are highly recognized and others, including Victoria’s Secret Pink and La Senza, exhibit brand recognition which provides us with a competitive advantage. These brands are aspirational at accessible price points and have a loyal customer base. These brands allow us to target markets across the economic spectrum, across demographics and across the world.
At Victoria’s Secret, we market products to the college-age woman with Victoria’s Secret Pink and then transition her into glamorous and sexy product lines, such as Angels, Very Sexy and Body by Victoria. While bras and panties are the core of what we do, these brands also give our customers choices in clothing, accessories, fragrances, personal care, swimwear and athletic attire.
Bath & Body Works caters to our customers’ entire well-being, providing shower gels and lotions, aromatherapy, antibacterial soaps, home fragrance and personal care accessories.
In Canada, La Senza is a leader in young women’s intimate apparel. La Senza offerings include bras, panties, sleepwear, loungewear and accessories.
In-Store Experience and Store Operations
We view the customers' in-store experience as an important vehicle for communicating the image of each brand. We utilize visual presentation of merchandise, in-store marketing, music and our sales associates to reinforce the image represented by the brands.
Our in-store marketing is designed to convey the principal elements and personality of each brand. The store design, furniture, fixtures and music are all carefully planned and coordinated to create a unique shopping experience. Every brand displays merchandise uniformly to ensure a consistent store experience, regardless of location. Store managers receive detailed plans designating fixture and merchandise placement to ensure coordinated execution of the company-wide merchandising strategy.
Our sales associates and managers are a central element in creating the atmosphere of the stores by providing a high level of customer service.
Product Development, Sourcing and Logistics
We believe a large part of our success comes from frequent and innovative product launches, which include bra launches at Victoria’s Secret and La Senza and new fragrance launches at Bath & Body Works. Our merchant, design and sourcing teams have a long history of bringing innovative products to our customers. Additionally, we believe that our sourcing function (Mast Global) has a long and deep presence in the key sourcing markets including those in the United States and Asia, which helps us partner with the best manufacturers and get high quality products quickly.
Experienced and Committed Management Team
We were founded in 1963 and have been led since inception by Leslie H. Wexner. Our senior management team has a wealth of retail and business experience at Limited Brands and other companies such as Neiman Marcus, Target, The Gap, Inc., The Home Depot, Carlson Companies, Land's End, Levi Strauss and Yum Brands. We believe that we have one of the most experienced management teams in retail.
Additional Information
Merchandise Suppliers
During 2011, we purchased merchandise from approximately 1,000 suppliers located throughout the world. No supplier provided 10% or more of our merchandise purchases.
Distribution and Merchandise Inventory
Most of the merchandise and related materials for our stores are shipped to our distribution centers in the Columbus, Ohio area. We use a variety of shipping terms that result in the transfer of title to the merchandise at either the point of origin or point of destination.
Our policy is to maintain sufficient quantities of inventories on hand in our retail stores and distribution centers to enable us to offer customers an appropriate selection of current merchandise. We emphasize rapid turnover and take markdowns as required to keep merchandise fresh and current.

3


Information Systems
Our management information systems consist of a full range of retail, financial and merchandising systems. The systems include applications related to point-of-sale, e-commerce, merchandising, planning, sourcing, logistics, inventory management and support systems including human resources and finance. We continue to invest in technology to upgrade core systems to continue to improve our efficiency and accuracy in the production and delivery of merchandise to our stores.
Seasonal Business
Our operations are seasonal in nature and consist of two principal selling seasons: Spring (the first and second quarters) and Fall (the third and fourth quarters). The fourth quarter, including the holiday season, accounted for approximately one-third of our net sales for 2011, 2010 and 2009 and is typically our most profitable quarter. Accordingly, cash requirements are highest in the third quarter as our inventories build in advance of the holiday season.
Working Capital
We fund our business operations through a combination of available cash and cash equivalents and cash flows generated from operations. In addition, our revolving credit facility is available for additional working capital needs and investment opportunities.
Regulation
We and our products are subject to regulation by various federal, state, local and foreign regulatory authorities. We are subject to a variety of customs regulations and international trade arrangements.
Trademarks and Patents
Our trademarks and patents, which constitute our primary intellectual property, have been registered or are the subject of pending applications in the United States Patent and Trademark Office and with the registries of many foreign countries and/or are protected by common law. We believe our products are identified by our intellectual property and, thus, our intellectual property is of significant value. Accordingly, we intend to maintain our intellectual property and related registrations and vigorously protect our intellectual property assets against infringement.
Segment Information
We have two reportable segments: Victoria’s Secret and Bath & Body Works. Prior to the fourth quarter of 2011, the Victoria’s Secret reportable segment consisted of the Victoria’s Secret and La Senza operating segments which were aggregated in accordance with the authoritative guidance included in Accounting Standards Codification Topic 280, Segment Reporting. In the fourth quarter of 2011, we ceased aggregating La Senza with Victoria's Secret. While this reporting change did not impact our consolidated results, segment data for previous years has been recast to be consistent with the current year presentation throughout the Form 10-K. For additional information, see Note 21 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data.
Other Information
For additional information about our business, including our net sales and profits for the last three years and selling square footage, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation. For the financial results of our reportable segments, see Note 21 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data.
Competition
The sale of women’s intimate and other apparel, personal care and beauty products and accessories through retail stores is a highly competitive business with numerous competitors, including individual and chain specialty stores, department stores and discount retailers. Brand image, marketing, design, price, service, assortment and quality are the principal competitive factors in retail store sales. Our direct response businesses compete with numerous national and regional direct response merchandisers. Image presentation, fulfillment and the factors affecting retail store sales discussed above are the principal competitive factors in direct response sales.
Associate Relations
As of January 28, 2012, we employed approximately 97,000 associates, 79,000 of whom were part-time. In addition, temporary associates are hired during peak periods, such as the holiday season.

4


Executive Officers of Registrant
Set forth below is certain information regarding our executive officers.
Leslie H. Wexner, 74, has been our Chairman of the Board of Directors for more than thirty years and our Chief Executive Officer since our founding in 1963.
Martyn R. Redgrave, 59, has been our Executive Vice President and Chief Administrative Officer since March 2005.
Stuart B. Burgdoerfer, 48, has been our Executive Vice President and Chief Financial Officer since April 2007.
Sharen J. Turney, 55, has been our Chief Executive Officer and President of Victoria’s Secret since July 2006.
Nicholas P. M. Coe, 49, has been our Chief Executive Officer and President of Bath & Body Works since August 2011.
Charles C. McGuigan, 55, has been our Chief Executive Officer and President of Mast Global since February 2011.
Jane L. Ramsey, 54, has been our Executive Vice President, Human Resources, since April 2006.
All of the above officers serve at the discretion of our Board of Directors and are members of our Executive Committee.
Available Information
We are subject to the reporting requirements of the Exchange Act and its rules and regulations. The Exchange Act requires us to file reports, proxy statements and other information with the U.S. Securities and Exchange Commission ("SEC"). Copies of these reports, proxy statements and other information can be read and copied at:
SEC Public Reference Room
100 F Street NE
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains a website that contains reports, proxy statements and other information regarding issuers that file electronically with the SEC. These materials may be obtained electronically by accessing the SEC's website at www.sec.gov. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available, free of charge, on our website www.LimitedBrands.com.
Copies of any of the above-referenced documents will also be made available, free of charge, upon written request to:
Limited Brands, Inc.
Investor Relations Department
Three Limited Parkway, P.O. Box 16000
Columbus, Ohio 43216

ITEM 1A. RISK FACTORS.
We caution that any forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) contained in this report or made by our company or our management involve risks and uncertainties and are subject to change based on various factors, many of which are beyond our control. Accordingly, our future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements. Words such as “estimate,” “project,” “plan,” “believe,” “expect,” “anticipate,” “intend,” “planned,” “potential” and any similar expressions may identify forward-looking statements. Risks associated with the following factors, among others, in some cases have affected and in the future could affect our financial performance and actual results and could cause actual results to differ materially from those expressed or implied in any forward-looking statements included in this report or otherwise made by our company or our management:
general economic conditions, consumer confidence, consumer spending patterns and market disruptions including severe weather conditions, natural disasters, health hazards, terrorist activities, financial crises, political crises or other major events, or the prospect of these events;
the seasonality of our business;
the dependence on a high volume of mall traffic and the possible lack of availability of suitable store locations on

5


appropriate terms;
our ability to grow through new store openings and existing store remodels and expansions;
our ability to successfully expand into international markets and related risks;
our independent licensees and franchisees;
our direct channel business;
our failure to protect our reputation and our brand images;
our failure to protect our trade names, trademarks and patents;
the highly competitive nature of the retail industry generally and the segments in which we operate particularly;
consumer acceptance of our products and our ability to keep up with fashion trends, develop new merchandise and launch new product lines successfully;
our reliance on foreign sources of production, including risks related to:
political instability;
duties, taxes, other charges on imports;
legal and regulatory matters;
volatility in currency exchange rates;
local business practices and political issues;
potential delays or disruptions in shipping and related pricing impacts;
the disruption of imports by labor disputes; and
changing expectations regarding product safety due to new legislation;
stock price volatility;
our failure to maintain our credit rating;
our ability to service our debt;
our ability to retain key personnel;
our ability to attract, develop and retain qualified employees and manage labor costs;
the inability of our manufacturers to deliver products in a timely manner and meet quality standards;
fluctuations in product input costs;
fluctuations in energy costs;
increases in the costs of mailing, paper and printing;
claims arising from our self-insurance;
our ability to implement and maintain information technology systems;
our failure to comply with regulatory requirements;
tax matters; and
legal and compliance matters.
We are not under any obligation and do not intend to make publicly available any update or other revisions to any of the forward-looking statements contained in this report to reflect circumstances existing after the date of this report or to reflect the occurrence of future events even if experience or future events make it clear that any expected results expressed or implied by those forward-looking statements will not be realized.
The following discussion of risk factors contains “forward-looking statements.” These risk factors may be important to understanding any statement in this Form 10-K, other filings or in any other discussions of our business. The following information should be read in conjunction with Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation and Item 8. Financial Statements and Supplementary Data.
In addition to the other information set forth in this report, the reader should carefully consider the following factors which could materially affect our business, financial condition or future results. The risks described below are not our only risks.

6


Additional risks and uncertainties not currently known or that are currently deemed to be immaterial may also adversely affect our business, operating results and/or financial condition in a material way.
Our net sales, profit results and cash flow are sensitive to, and may be adversely affected by, general economic conditions, consumer confidence, spending patterns and market disruptions.
Our net sales, profit, cash flows and future growth may be adversely affected by negative local, regional, national or international political or economic trends or developments that reduce the consumers’ ability or willingness to spend, including the effects of national and international security concerns such as war, terrorism or the threat thereof. In addition, market disruptions due to severe weather conditions, natural disasters, health hazards or other major events or the prospect of these events could also impact consumer spending and confidence levels. In particular, our operating results are impacted by factors in the U.S. and Canadian economies. Purchases of women’s intimate and other apparel, beauty and personal care products and accessories often decline during periods when economic or market conditions are unsettled or weak. In such circumstances, we may increase the number of promotional sales, which could have a material adverse effect on our results of operations, financial condition and cash flows.
Our net sales, operating income and inventory levels fluctuate on a seasonal basis.
We experience major seasonal fluctuations in our net sales and operating income, with a significant portion of our operating income typically realized during the fourth quarter holiday season. Any decrease in sales or margins during this period could have a material adverse effect on our results of operations, financial condition and cash flows.
Seasonal fluctuations also affect our inventory levels, since we usually order merchandise in advance of peak selling periods and sometimes before new fashion trends are confirmed by customer purchases. We must carry a significant amount of inventory, especially before the holiday season selling period. If we are not successful in selling inventory, we may have to sell the inventory at significantly reduced prices or may not be able to sell the inventory at all, which could have a material adverse effect on our results of operations, financial condition and cash flows.
Our net sales depend on a volume of traffic to our stores and the availability of suitable lease space.
Most of our stores are located in retail shopping areas including malls and other types of retail centers. Sales at these stores are derived, in part, from the volume of traffic in those retail areas. Our stores benefit from the ability of the retail center and other attractions in an area, including “destination” retail stores, to generate consumer traffic in the vicinity of our stores. Sales volume and retail traffic may be adversely affected by economic downturns in a particular area, competition from other retail and non-retail attractions and other retail areas where we do not have stores.
Part of our future growth is significantly dependent on our ability to operate stores in desirable locations with capital investment and lease costs providing the opportunity to earn a reasonable return. We cannot be sure as to when or whether such desirable locations will become available at reasonable costs.
These risks could have a material adverse effect on our results of operations, financial condition and cash flows.
Our ability to grow depends in part on new store openings and existing store remodels and expansions.
Our continued growth and success will depend in part on our ability to open and operate new stores and expand and remodel existing stores on a timely and profitable basis. Accomplishing our new and existing store expansion goals will depend upon a number of factors, including the ability to partner with developers and landlords to obtain suitable sites for new and expanded stores at acceptable costs, the hiring and training of qualified personnel, particularly at the store management level, and the integration of new stores into existing operations. There can be no assurance we will be able to achieve our store expansion goals, manage our growth effectively, successfully integrate the planned new stores into our operations or operate our new, remodeled and expanded stores profitably. These risks could have a material adverse effect on our results of operations, financial condition and cash flows.
Our plans for international expansion include risks that could adversely impact our results and reputation.
We intend to further expand into international markets through license and franchise agreements and/or company-owned stores. The risks associated with our expansion into international markets include difficulties in attracting customers due to a lack of customer familiarity with our brands, our lack of familiarity with local customer preferences and seasonal differences in the market. Further, entry into other markets may bring us into competition with new competitors or with existing competitors with an established market presence. Other risks include general economic conditions in specific countries or markets, disruptions or delays in shipments, changes in diplomatic and trade relationships, political instability and foreign governmental regulation.

7


We also have risks related to identifying suitable partners as licensees, franchisees or in a similar capacity. In addition, certain aspects of these arrangements are not directly within our control, such as the ability of these third parties to meet their projections regarding store openings and sales. We cannot ensure the profitability or success of our expansion into international markets.
In addition, our results of operations and financial condition may be adversely affected by fluctuations in currency exchange rates. More specifically, an increase in the value of the U.S. dollar relative to other currencies could have an adverse effect on our earnings and our financial condition.
These risks could have a material adverse effect on our brand image and reputation as well as our results of operations, financial condition and cash flows.
Our licensees and franchisees could take actions that could harm our business or brand images.
We have global representation through independently owned stores operated by licensees and franchisees (“partners”). Although we have criteria to evaluate and select prospective partners, the level of control we can exercise over our partners is limited and the quality and success of their operations may be diminished by any number of factors beyond our control. Our partners may not have the business acumen or financial resources necessary to successfully operate stores in a manner consistent with our standards and may not hire and train qualified store managers and other personnel. Our brand image and reputation may suffer materially and our sales could decline if our partners do not operate successfully. These risks could have an adverse effect on our results of operations, financial condition and cash flows.
Our direct channel business includes risks that could have an adverse effect on our results.
Our direct operations are subject to numerous risks that could have a material adverse effect on our results. Risks include, but are not limited to, the (a) diversion of sales from our stores, which may impact comparable store sales figures, (b) difficulty in recreating the in-store experience through our direct channels, (c) domestic or international resellers purchasing merchandise and reselling it overseas outside our control, (d) the failure of and risks related to the systems that operate the websites and their related support systems, including computer viruses, theft of customer information, privacy concerns, telecommunication failures and electronic break-ins and similar disruptions, and (e) risks related to the fulfillment of direct-to-consumer orders. Any of these events could have a material adverse effect on our results of operations, financial condition and cash flows.
Our failure to protect our reputation could have a material adverse effect on our brand images.
Our ability to maintain our reputation is critical to our brand images. Our reputation could be jeopardized if we fail to maintain high standards for merchandise quality and integrity. Any negative publicity about these types of concerns may reduce demand for our merchandise. Failure to comply with ethical, social, product, labor and environmental standards, or related political considerations, could also jeopardize our reputation and potentially lead to various adverse consumer actions, including boycotts. Failure to comply with local laws and regulations, to maintain an effective system of internal controls or to provide accurate and timely financial statement information could also hurt our reputation. Damage to our reputation or loss of consumer confidence for any of these or other reasons could have a material adverse effect on our results of operations, financial condition and cash flows, as well as require additional resources to rebuild our reputation.
Our failure to adequately protect our trade names, trademarks and patents could have a negative impact on our brand images and limit our ability to penetrate new markets.
We believe that our trade names, trademarks and patents are an essential element of our strategy. We have obtained or applied for federal registration of these trade names, trademarks and patents and have applied for or obtained registrations in many foreign countries. There can be no assurance that we will obtain such registrations or that the registrations we obtain will prevent the imitation of our products or infringement of our intellectual property rights by others. If any third-party copies our products in a manner that projects lesser quality or carries a negative connotation, it could have a material adverse effect on our brand image and reputation as well as our results of operations, financial condition and cash flows.

Our inability to compete favorably in our highly competitive segment of the retail industry could negatively impact our results.
The sale of women’s intimate and other apparel, personal care products and accessories is highly competitive. We compete for sales with a broad range of other retailers, including individual and chain specialty stores, department stores and discount retailers. In addition to the traditional store-based retailers, we also compete with direct marketers or retailers that sell similar lines of merchandise and who target customers through direct response channels. Brand image, marketing, design, price, service, quality, image presentation and fulfillment are all competitive factors in both the store-based and direct response channels.

8


Some of our competitors may have greater financial, marketing and other resources available. In many cases, our competitors sell their products in stores that are located in the same shopping malls as our stores. In addition to competing for sales, we compete for favorable site locations and lease terms in shopping malls.
Increased competition could result in price reductions, increased marketing expenditures and loss of market share, any of which could have a material adverse effect on our results of operations, financial condition and cash flows.
Our inability to remain current with fashion trends and launch new product lines successfully could negatively impact the image and relevance of our brands.
Our success depends in part on management’s ability to effectively anticipate and respond to changing fashion preferences and consumer demands and to translate market trends into appropriate, saleable product offerings in advance of the actual time of sale to the customer. Customer demands and fashion trends change rapidly. If we are unable to successfully anticipate, identify or react to changing styles or trends or we misjudge the market for our products or any new product lines, our sales will be lower, potentially resulting in significant amounts of unsold finished goods inventory. In response, we may be forced to increase our marketing promotions or price markdowns. These risks could have a material adverse effect on our brand image and reputation as well as our results of operations, financial condition and cash flows.
We rely significantly on foreign sources of production and maintenance of operations in foreign countries.
We purchase merchandise directly in foreign markets and in our domestic market. Many of our imports are subject to a variety of customs regulations and international trade arrangements, including existing or potential duties, tariffs or safeguard quotas. We compete with other companies for production facilities.
We also face a variety of other risks generally associated with doing business in foreign markets and importing merchandise from abroad, such as:
political instability;
imposition of duties, taxes and other charges on imports;
legal and regulatory matters;
volatility in currency exchange rates;
local business practice and political issues (including issues relating to compliance with domestic or international labor standards) which may result in adverse publicity or threatened or actual adverse consumer actions, including boycotts;
potential delays or disruptions in shipping and related pricing impacts;
disruption of imports by labor disputes; and
changing expectations regarding product safety due to new legislation.
New initiatives may be proposed impacting the trading status of certain countries and may include retaliatory duties or other trade sanctions which, if enacted, would limit or reduce the products purchased from suppliers in such countries.
In addition, significant health hazards, environmental hazards or natural disasters may occur which could have a negative effect on the economies, financial markets and business activity. Our purchase of merchandise from these manufacturing operations may be affected by this risk.
Our future performance will depend upon these and the other factors listed above which are beyond our control and could have a material adverse effect on our results of operations, financial condition and cash flows.
Our stock price may be volatile.
Our stock price may fluctuate substantially as a result of quarter to quarter variations in our actual or projected performance or the financial performance of other companies in the retail industry. In addition, the stock market has experienced price and volume fluctuations that have affected the market price of many retail and other stocks and that have often been unrelated or disproportionate to the operating performance of these companies.

Our failure to maintain our credit rating could negatively affect our ability to access capital and would increase our interest expense.
The credit ratings agencies periodically review our capital structure and the quality and stability of our earnings. Any negative ratings actions could constrain the capital available to our company or our industry and could limit our access to funding for

9


our operations. We are dependent upon our ability to access capital at rates and on terms we determine to be attractive. If our ability to access capital becomes constrained, our interest costs will likely increase, which could have a material adverse effect on our results of operations, financial condition and cash flows. Additionally, changes to our credit rating would affect our interest costs.
We may be unable to service our debt.
Some of our debt agreements contain covenants which require maintenance of certain financial ratios and also, under certain conditions, restrict our ability to pay dividends, repurchase common shares and make other restricted payments as defined in those agreements. Our cash flow from operations provides the primary source of funds for our debt service payments. If our cash flow from operations declines, we may be unable to service or refinance our current debt.
We may be unable to retain key personnel.
We believe we have benefited substantially from the leadership and experience of our senior executives, including Leslie H. Wexner (Chairman of the Board of Directors and Chief Executive Officer). The loss of the services of any of these individuals could have a material adverse effect on our business and prospects. Competition for key personnel in the retail industry is intense and our future success will also depend on our ability to recruit, train and retain other qualified key personnel.
We may be unable to attract, develop and retain qualified employees and manage labor costs.
We believe our competitive advantage is providing a positive, engaging and satisfying experience for each individual customer, which requires us to have highly trained and engaged employees. Our success depends in part upon our ability to attract, develop and retain a sufficient number of qualified employees, including store personnel and talented merchants. The turnover rate in the retail industry is generally high and qualified individuals of the requisite caliber and number needed to fill these positions may be in short supply in some areas. Competition for such qualified individuals or changes in labor and healthcare laws could require us to incur higher labor costs. Our inability to recruit a sufficient number of qualified individuals in the future may delay planned openings of new stores or affect the speed with which we expand. Delayed store openings, significant increases in employee turnover rates or significant increases in labor costs could have a material adverse effect on our results of operations, financial condition and cash flows.
Our manufacturers may not be able to manufacture and deliver products in a timely manner and meet quality standards.
We purchase products through contract manufacturers and importers and directly from third-party manufacturers. Factors outside our control, such as manufacturing or shipping delays or quality problems, could disrupt merchandise deliveries and result in lost sales, cancellation charges or excessive markdowns. In addition, quality problems could result in a product liability judgment or a widespread product recall that may negatively impact our sales and profitability for a period of time depending on product availability, competition reaction and consumer attitudes. Even if the product liability claim is unsuccessful or is not fully pursued, the negative publicity surrounding any assertions could adversely impact our reputation with existing and potential customers and our brand image. These risks could have a material adverse effect on our results of operations, financial condition and cash flows.
Our results may be adversely affected by fluctuations in product input costs.
Product input costs, including manufacturing labor and raw materials, fluctuate. These fluctuations may result in an increase in our production costs. We may not be able to, or may elect not to, pass these increases on to our customers which may adversely impact our profit margins. These risks could have a material adverse effect on our results of operations, financial condition and cash flows.
Our results may be adversely affected by fluctuations in energy costs.
Energy costs have fluctuated dramatically in the past. These fluctuations may result in an increase in our transportation costs for distribution, utility costs for our retail stores and costs to purchase products from our manufacturers. A continual rise in energy costs could adversely affect consumer spending and demand for our products and increase our operating costs, both of which could have a material adverse effect on our results of operations, financial condition and cash flows.
We may be adversely impacted by increases in costs of mailing, paper and printing.
Postal rate increases and paper and printing costs will affect the cost of our order fulfillment and catalogue and promotional mailings. We rely on discounts from the basic postal rate structure, such as discounts for bulk mailings and sorting. Future paper and postal rate increases could adversely impact our earnings if we are unable to recover these costs or if we are unable

10


to implement more efficient printing, mailing, delivery and order fulfillment systems. These risks could have a material adverse effect on our results of operations, financial condition and cash flows.
We self-insure certain risks and may be adversely impacted by unfavorable claims experience.
We are self-insured for various types of insurable risks including associate medical benefits, workers’ compensation, property, general liability and automobile up to certain stop-loss limits. Claims are difficult to predict and may be volatile. Any adverse claims experience could have a material adverse effect on our results of operations, financial condition and cash flows.
We significantly rely on our ability to implement and sustain information technology systems.
Our success depends, in part, on the secure and uninterrupted performance of our information technology systems. Our information technology systems, as well as those of our service providers, are vulnerable to damage from a variety of sources, including telecommunication failures, malicious human acts and natural disasters. Moreover, despite network security measures, some of our servers and those of our service providers are potentially vulnerable to physical or electronic break-ins, computer viruses and similar disruptive problems. Additionally, these types of problems could result in a breach of confidential customer information which could result in damage to our reputation and/or litigation. Despite the precautions we have taken, unanticipated problems may nevertheless cause failures in our information technology systems. Sustained or repeated system failures that interrupt our ability to process orders and deliver products to the stores or impact our consumers ability to access our websites in a timely manner or expose confidential customer information could have a material adverse effect on our results of operations, financial condition and cash flows.
In addition, we will make modifications and upgrades to the information technology systems for point-of-sale, e-commerce, merchandising, planning, sourcing, logistics, inventory management and support systems including human resources and finance. Modifications involve replacing legacy systems with successor systems, making changes to legacy systems or acquiring new systems with new functionality. We are aware of inherent risks associated with replacing these systems, including accurately capturing data and system disruptions. Information technology system disruptions, if not anticipated and appropriately mitigated, could have a material adverse effect on our operations.
We may fail to comply with regulatory requirements.
As a public company, we are subject to numerous regulatory requirements. Our policies, procedures and internal controls are designed to comply with all applicable foreign and domestic laws and regulations, including those required by the Sarbanes-Oxley Act of 2002, the SEC and the New York Stock Exchange (the “NYSE”). Failure to comply with such laws and regulations could have an adverse effect on our reputation, market price of our common stock, results of operations, financial condition and cash flows.
We may be adversely impacted by changes in taxation requirements.
We are subject to income tax in local, national and international jurisdictions. In addition, our products are subject to import and excise duties and/or sales or value-added taxes in many jurisdictions. Fluctuations in tax rates and duties and changes in tax legislation or regulation could have a material adverse effect on our results of operations, financial condition and cash flows.
We may be adversely impacted by certain compliance or legal matters.
We along with our third-party business partners are subject to complex compliance and litigation risks. Actions filed against our Company from time to time include commercial, tort, intellectual property, customer, employment, data privacy, securities, anti-corruption and other claims, including purported class action lawsuits. Difficulty can exist in complying with sometimes conflicting regulations in local, national or foreign jurisdictions as well as new or changing regulations that affect how we operate. In addition, we may be impacted by litigation trends, including class action lawsuits involving consumers and shareholders that could have a material adverse effect on our reputation, market price of our common stock, results of operations, financial condition and cash flows.

ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.


11


ITEM 2. PROPERTIES.
The following table provides the location, use and size of our distribution, corporate and product development facilities as of January 28, 2012:
 
Location
 
Use
 
Approximate
Square
Footage
Columbus, Ohio
 
Corporate, distribution and shipping
 
6,388,000

Montreal, Quebec, Canada
 
Office, distribution and shipping
 
452,000

New York, New York
 
Office, sourcing and product development/design
 
479,000

Kettering, Ohio
 
Call center
 
94,000

Hong Kong
 
Office and sourcing
 
80,000

Rio Rancho, New Mexico
 
Call center
 
75,000

Various foreign locations
 
Office and sourcing
 
74,000


United States
Our business for both the Victoria’s Secret and Bath & Body Works segments is principally conducted from office, distribution and shipping facilities located in the Columbus, Ohio area. Additional facilities are located in New York, New York; Kettering, Ohio; and Rio Rancho, New Mexico.
Our distribution and shipping facilities consist of seven buildings located in the Columbus, Ohio area. These buildings, including attached office space, comprise approximately 6.4 million square feet.
As of January 28, 2012, we operate 2,623 retail stores located in leased facilities, primarily in malls and shopping centers, throughout the U.S. A substantial portion of these lease commitments consists of store leases generally with an initial term of ten years. The leases expire at various dates between 2012 and 2026.
Typically, when space is leased for a retail store in a mall or shopping center, we supply all improvements, including interior walls, floors, ceilings, fixtures and decorations. The cost of improvements varies widely, depending on the design, size and location of the store. In certain cases, the landlord of the property may provide an allowance to fund all or a portion of the cost of improvements, serving as a lease incentive. Rental terms for new locations usually include a fixed minimum rent plus a percentage of sales in excess of a specified amount. We usually pay certain operating costs such as common area maintenance, utilities, insurance and taxes. For additional information, see Note 16 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data.
International
Canada
We own and lease office, distribution and shipping facilities in the Montreal, Quebec area. Additional leased office facilities are located in Toronto, Ontario.
Our distribution and shipping facilities consist of two buildings located in the Montreal, Quebec area. These buildings, including attached office space, comprise approximately 387,000 square feet. Additionally, we lease additional office facilities in the Montreal area comprised of approximately 65,000 square feet. During the fourth quarter of 2011, we initiated a restructuring program designed to relocate a substantial portion of its Canadian home office from Montreal to Columbus, Ohio. For additional information, see Note 5 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplemental Data.
As of January 28, 2012, we operate 318 retail stores located in leased facilities, primarily in malls and shopping centers, throughout the Canadian provinces. A substantial portion of these lease commitments consists of store leases generally with an initial term of ten years. The leases expire on various dates between 2012 and 2023.
Other International
As of January 28, 2012, we also have global representation through the following:
349 independently owned La Senza stores operated under licensing arrangements in 30 countries;
18 independently owned Bath & Body Works stores operated by a franchisee in 6 Middle Eastern countries; and

12


57 independently owned Victoria’s Secret Beauty and Accessories stores as well as various duty free locations in 39 countries.
We also operate sourcing-related office facilities in various foreign locations.

ITEM 3. LEGAL PROCEEDINGS.
We are a defendant in a variety of lawsuits arising in the ordinary course of business. Actions filed against our Company from time to time include commercial, tort, intellectual property, customer, employment, data privacy, securities and other claims, including purported class action lawsuits. Although it is not possible to predict with certainty the eventual outcome of any litigation, in the opinion of management, our current legal proceedings are not expected to have a material adverse effect on our financial position or results of operations.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

13


PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Our common stock (“LTD”) is traded on the New York Stock Exchange. As of January 28, 2012, there were approximately 46,000 shareholders of record. However, including active associates who participate in our stock purchase plan, associates who own shares through our sponsored retirement plans and others holding shares in broker accounts under street names, we estimate the shareholder base to be approximately 179,000.
The following table provides our quarterly market prices and cash dividends per share for 2011 and 2010:
 
 
Market Price
 
Cash Dividend
per Share
 
 
High
 
Low
 
2011
 
 
 
 
 
 
Fourth quarter
$
44.46

 
$
37.57

 
$
2.20

(a)
Third quarter
45.45
 
31.43
 
0.20

 
Second quarter
42.75
 
35.08
 
1.20

(b)
First quarter
41.48
 
28.64
 
0.20

(c)
2010

 

 

 
Fourth quarter
$
35.48

 
$
28.05

 
$
3.15

(d)
Third quarter
29.95

 
23.57

 
0.15

  
Second quarter
28.19

 
21.78

 
0.15

  
First quarter
28.78

 
19.12

 
1.15

(e)
________________ 

(a)
In December 2011, our Board of Directors declared a special dividend of $2 per share which was distributed on December 23, 2011 to shareholders of record at the close of business on December 12, 2011.
(b)
In May 2011, our Board of Directors declared a special dividend of $1 per share which was distributed on July 1, 2011 to shareholders of record at the close of business on June 17, 2011.
(c)
In January 2011, our Board of Directors declared an increase in our quarterly common stock dividend from $0.15 to $0.20 per share.
(d)
In November 2010, our Board of Directors declared a special dividend of $3 per share which was distributed on December 21, 2010 to shareholders of record at the close of business on December 7, 2010.
(e)
In March 2010, our Board of Directors declared a special dividend of $1 per share which was distributed on April 19, 2010 to shareholders of record at the close of business on April 5, 2010.

In February 2012, our Board of Directors declared an increase in our first quarter 2012 common stock dividend from $0.20 to $0.25 per share. The dividend was paid on March 9, 2012 to shareholders of record at the close of business on February 24, 2012 and included the $0.05 per share increase.

14


The following graph shows the changes, over the past five-year period, in the value of $100 invested in our common stock, the Standard & Poor’s 500 Composite Stock Price Index and the Standard & Poor’s 500 Retail Composite Index. The plotted points represent the closing price on the last day of the fiscal year indicated.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN (a) (b) (c)
AMONG LIMITED BRANDS, INC., THE S&P 500 INDEX AND THE S&P RETAIL COMPOSITE INDEX

_______________
(a)
This table represents $100 invested in stock or in index at the closing price on February 3, 2007 including reinvestment of dividends.
(b)
The January 28, 2012 cumulative total return includes the $1.00 and $2.00 special dividends in May 2011 and December 2011, respectively.
(c)
The January 29, 2011 cumulative total return includes the $1.00 and $3.00 special dividends in March 2010 and December 2010, respectively.
The following table provides our repurchases of our common stock during the fourth quarter of 2011:
 
Period
 
Total
Number of
Shares
Purchased(a)
 
Average Price
Paid per
Share(b)
 
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Programs(c)
 
Maximum
Number of Shares (or
Approximate
Dollar Value) that May
Yet be Purchased
Under the Programs(c)
 
 
(in thousands)
 
 
 
(in thousands)
November 2011
 
1,414

 
$
41.84

 
1,392

 
$
223,932

December 2011
 
936

 
40.23

 
920

 
186,976

January 2012
 
570

 
40.31

 
562

 
164,309

Total
 
2,920

 
41.03

 
2,874

 
 
 ________________
(a)
The total number of shares repurchased includes shares repurchased as part of publicly announced programs, with the remainder relating to shares repurchased in connection with tax payments due upon vesting of employee restricted stock awards and the use of our stock to pay the exercise price on employee stock options.
(b)
The average price paid per share includes any broker commissions.
(c)
For additional share repurchase program information, see Note 19 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data.

15


ITEM 6. SELECTED FINANCIAL DATA.
 
 
 
Fiscal Year Ended
 
 
January 28, 2012
 
January 29, 2011
 
January 30, 2010
 
January 31, 2009
 
February 2, 2008
 
 
(in millions)
Summary of Operations
 
 
 
 
 
 
 
 
 
 
Net Sales
 
$
10,364

 
$
9,613

 
$
8,632

 
$
9,043

 
$
10,134

Gross Profit
 
4,057

 
3,631

 
3,028

 
3,006

 
3,509

Operating Income (a)
 
1,238

 
1,284

 
868

 
589

 
1,110

Net Income (b)
 
850

 
805

 
448

 
220

 
718

 
 
(as a percentage of net sales)
Gross Profit
 
39.1
%
 
37.8
%
 
35.1
%
 
33.2
%
 
34.6
%
Operating Income
 
11.9
%
 
13.4
%
 
10.1
%
 
6.5
%
 
11.0
%
Net Income
 
8.2
%
 
8.4
%
 
5.2
%
 
2.4
%
 
6.9
%
 
 
 
 
 
 
 
 
 
 
 
Per Share Results
 
 
 

 

 

 

Net Income Per Basic Share
 
$
2.80

 
$
2.49

 
$
1.39

 
$
0.66

 
$
1.91

Net Income Per Diluted Share
 
$
2.70

 
$
2.42

 
$
1.37

 
$
0.65

 
$
1.89

Dividends per Share
 
$
3.80

 
$
4.60

 
$
0.60

 
$
0.60

 
$
0.60

Weighted Average Diluted Shares Outstanding (in millions)
 
314

 
333

 
327

 
337

 
380

 
 
 
 
 
 
 
 
 
 
 
Other Financial Information
 
(in millions)
Cash and Cash Equivalents
 
$
935

 
$
1,130

 
$
1,804

 
$
1,173

 
$
1,018

Total Assets
 
6,108

 
6,451

 
7,173

 
6,972

 
7,437

Working Capital
 
842

 
1,088

 
1,928

 
1,612

 
1,545

Net Cash Provided by Operating Activities
 
1,266

 
1,284

 
1,174

 
954

 
765

Capital Expenditures
 
426

 
274

 
202

 
479

 
749

Long-term Debt
 
3,481

 
2,507

 
2,723

 
2,897

 
2,905

Other Long-term Liabilities
 
780

 
761

 
731

 
732

 
709

Shareholders’ Equity
 
137

 
1,476

 
2,183

 
1,874

 
2,219

 
 
 
 
 
 
 
 
 
 
 
Return on Average Shareholders’ Equity
 
105
%
 
44
%
 
22
%
 
11
%
 
28
%
Comparable Store Sales Increase (Decrease) (c)
 
10
%
 
9
%
 
(4
)%
 
(9
)%
 
(2
)%
Return on Average Assets
 
14
%
 
12
%
 
6
%
 
3
%
 
10
%
Current Ratio
 
1.6

 
1.7

 
2.5

 
2.3

 
2.1

 
 
 
 
 
 
 
 
 
 
 
Stores and Associates at End of Year
 
 
 
 
 
 
 
 
 
 
Number of Stores (d)
 
2,941

 
2,968

 
2,971

 
3,014

 
2,926

Selling Square Feet (in thousands) (d)
 
10,934

 
10,974

 
10,934

 
10,898

 
10,310

Number of Associates
 
97,000

 
96,500

 
92,100

 
90,900

 
97,500

 ________________
(a)
Operating income includes the effect of the following items:
(i)
In 2011, a $232 million impairment charge related to goodwill and other intangible assets for our La Senza business; a $111 million gain related to the divestiture of 51% of our third-party apparel sourcing business; $163 million of expense related to the charitable contribution of our remaining shares of Express, Inc. to the Limited Brands Foundation; and $24 million of restructuring expenses at La Senza.
(ii)
In 2009, a $9 million pre-tax gain, $14 million net of related tax benefits, associated with the reversal of an accrued contractual liability as a result of the divestiture of a joint venture.

16


(iii)
In 2008, a $215 million impairment charge related to goodwill and other intangible assets for our La Senza business; a $128 million gain related to the divestiture of a personal care joint venture; $23 million of expense related to restructuring activities; and a $19 million impairment charge related to a joint venture.
(iv)
In 2007, a $302 million gain related to the divestiture of Express; a $72 million loss related to the divestiture of Limited Stores; $48 million related to initial recognition of income for unredeemed gift cards at Victoria’s Secret; $53 million of expense related to various restructuring activities; and $37 million of gains related to asset sales.

For additional information on 2011, 2010 and 2009 items, see the Notes to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data.
(b)
In addition to the items previously discussed in (a), net income includes the effect of the following items:
(i)
In 2011, a $147 million gain related to the charitable contribution of our remaining shares of Express, Inc. to the Limited Brands Foundation; an $86 million gain related to the sale of Express, Inc. common stock; and $56 million of favorable income tax benefits related to certain discrete tax matters.
(ii)
In 2010, a $52 million gain related to the initial public offering of Express including the sale of a portion of our shares; a $49 million pre-tax gain related to a $57 million cash distribution from Express; a $45 million pre-tax gain related to the sale of Express stock; a $25 million pre-tax loss associated with the early retirement of portions of our 2012 and 2014 notes; a $20 million pre-tax gain associated with the sale of our remaining 25% ownership interest in Limited Stores; and a $7 million pre-tax gain related to a dividend payment from Express.
(iii)
In 2009, $23 million of favorable income tax benefits in the fourth quarter primarily related to the reorganization of certain foreign subsidiaries and $9 million of favorable income tax benefits in the third quarter primarily due to the resolution of certain tax matters.
(iv)
In 2008, $15 million of favorable tax benefits in the fourth quarter primarily related to certain discrete foreign and state income tax items and a $13 million pre-tax gain related to a cash distribution from Express.
(v)
In 2007, a $100 million pre-tax gain related to a cash distribution from Easton Town Center, LLC; a $17 million pre-tax gain related to an interest rate hedge; and $67 million of favorable tax benefits primarily relating to: 1) the reversal of state net operating loss carryforward valuation allowances and other favorable tax benefits associated with the Apparel divestitures; 2) a decline in the Canadian federal tax rate; 3) audit settlements and 4) other items.
For additional information on 2011, 2010 and 2009 items, see the Notes to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data.
The effect of the items described in (a) and (b) above increased (decreased) earnings per share by $0.10 in 2011, $0.36 in 2010, $0.14 in 2009, $(0.40) in 2008 and $0.68 in 2007.
(c)
A store is typically included in the calculation of comparable store sales when it has been open or owned 12 months or more and it has not had a change in selling square footage of 20% or more. Additionally, stores of a given brand are excluded if total selling square footage for the brand in the mall changes by 20% or more through the opening or closing of a second store.
(d)
Number of stores and selling square feet excludes independently owned La Senza, Bath & Body Works and Victoria’s Secret stores operated by licensees and franchisees.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis of financial condition and results of operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") as codified in the Accounting Standards Codification ("ASC"). The following information should be read in conjunction with our financial statements and the related notes included in Item 8. Financial Statements and Supplementary Data.
Our operating results are generally impacted by changes in the U.S. and Canadian economies and, therefore, we monitor the retail environment using, among other things, certain key industry performance indicators such as the University of Michigan Consumer Sentiment Index (which measures consumers’ views on the future course of the U.S. economy), the National Retail Traffic Index (which measures traffic levels in malls nationwide) and National Retail Sales (which reflects sales volumes of 5,000 businesses as measured by the U.S. Census Bureau). These indices provide insight into consumer spending patterns and shopping behavior in the current retail environment and assist us in assessing our performance as well as the potential impact of

17


industry trends on our future operating results. Additionally, we evaluate a number of key performance indicators including comparable store sales, gross profit, operating income and other performance metrics such as sales per average selling square foot and inventory per selling square foot in assessing our performance.
Executive Overview
Strategy
Our strategy supports our mission to build a family of the world’s best fashion retail brands offering captivating customer experiences that drive long-term loyalty.
To execute our strategy, we are focused on these key strategic imperatives:
Grow and maximize profitability of our core brands in current channels and geographies;
Extend our core brands into new channels and geographies;
Incubate and grow new brands in current channels;
Build enabling infrastructure and capabilities;
Become the top destination for talent; and
Optimize our capital structure.
The following is a discussion of certain of these key strategic imperatives:
Grow and maximize profitability of our core brands in current channels and geographies
The core of Victoria’s Secret is bras and panties. We see clear opportunities for substantial growth in these categories by focusing on product newness and innovation and expanding into under-penetrated market and price segments. In our direct channel, we have the infrastructure in place to support growth well into the future. We believe our direct channel is an important form of brand advertising given the ubiquitous nature of the internet and our large customer file.
The core of Bath & Body Works is its home fragrance and personal care product lines including shower gels, lotions and antibacterial soaps which together make up the majority of sales and profits for the business. Additionally, www.BathandBodyWorks.com continues to exhibit year-over-year growth.
We have a multi-year goal to substantially increase operating margins for our brands through increased sales productivity, merchandise margin expansion and expense control. With regard to merchandise margin expansion, we actively manage our inventory to minimize the level of promotional activity and we will continue to work with our merchandise vendors on innovation, quality, speed and cost. Additionally, we have made a concerted effort to manage home office headcount and overhead expenses. Finally, we have and will continue to optimize our marketing expense by concentrating our expenditures on efficient and return-generating programs. In 2011, we made significant progress towards improving our operating income rate.
Extend our core brands into new channels and geographies
We began our international expansion with the acquisition of La Senza at the beginning of 2007. Since 2008, we have opened 69 Bath & Body Works stores, 11 Victoria’s Secret full assortment stores and 8 Victoria’s Secret Pink stores in Canada. Based on the success we have experienced in Canada, we plan to open an additional 3 Bath & Body Works stores, 5 Victoria’s Secret stores and 2 Victoria’s Secret Pink stores in Canada in 2012.
We continue to expand our presence outside of North America. In 2011, we accomplished the following:
Victoria's Secret Beauty and Accessories Stores (formerly Victoria's Secret Travel and Tourism Stores)—Our partners opened 40 additional Victoria’s Secret Beauty and Accessories stores bringing the total to 57. These stores are principally located in airports and tourist destinations. These stores are focused on Victoria’s Secret branded beauty and accessory products and are operated by partners under a franchise or wholesale model. Our partners plan to open an additional 75 Victoria’s Secret Beauty and Accessories stores in 2012.
Bath & Body Works Franchise Stores—Our partners opened 12 Bath & Body Works stores in the Middle East in 2011 bringing the total to 18. Our partners plan to open approximately 32 additional stores in 2012.
Victoria’s Secret Full Assortment Stores—We announced plans to open a company-owned Victoria’s Secret full assortment store on the corner of New Bond Street and Brook Street in London in 2012 as well as a company-owned mall-based store in London. Additionally, a partner plans to open a total of 3 stores in Dubai and Kuwait City in 2012.

18


La Senza Franchise Stores—Our partners opened 49 additional La Senza stores and plan to open a total of approximately 45 new La Senza stores globally in 2012.
Incubate and grow new brands in current channels
Our most successful brands have either been conceived or incubated within Limited Brands, including Victoria’s Secret and

19


Bath & Body Works. We are constantly experimenting with new ideas and our current efforts include standalone Victoria’s Secret Pink and VSX stores and Henri Bendel stores focused on accessories. In 2011, we accomplished the following:
Victoria's Secret Pink Stores—We have opened 2 Victoria's Secret Pink stores in the United States in 2011 bringing the total to 15. We plan to open approximately 20 additional stores in 2012.
Victoria's Secret VSX Stores—We have opened 1 Victoria's Secret VSX store in the United States in 2011 bringing the total to 2.
Henri Bendel—We have opened 8 Henri Bendel stores in the United States in 2011 bringing the total to 19. We plan to open approximately 10 additional stores in 2012.
Build enabling infrastructure and capabilities
Over the past five years, we have opened a new Direct to Consumer distribution center, launched new merchandise planning systems, new supply chain management systems, new financial and other support systems and a new point-of-sale system in our stores. We are using these capabilities to be able to more productively react to current market conditions, improve inventory accuracy, turnover and in-stock levels and deliver more targeted assortments at the store level. In 2012, we plan to continue to roll out new point-of-sale systems to our stores, continue to build new cross-channel functionality at Victoria’s Secret and invest in international support systems.
2011 Overview
Our net sales increased $751 million to $10.364 billion driven by a comparable store sales increase of 10%. Our operating income decreased $46 million to $1.238 billion including $308 million of special items. For additional information on the special items, see the "Adjusted Financial Information" table below. Excluding these special items, we had record performance in 2011 as our adjusted operating income increased $262 million to $1.546 billion driven by the strength of our assortments and store selling efforts, coupled with continued disciplined inventory and expense management.
For additional information related to our 2011 financial performance, see “Results of Operations – 2011 Compared to 2010.”
During 2011, we continued to focus on conservative management and retail fundamentals including:
Inventory levels— Our inventory ended 2011 down 3% compared to 2010 and our inventory per selling square foot ended 2011 flat compared to 2010.
Capital expenditures—Our capital expenditures of $426 million included $281 million for opening new stores and remodeling and improving existing stores. Remaining capital expenditures were primarily related to spending on technology and infrastructure to support growth.
Cash and liquidity—We generated cash flow from operations of $1.266 billion in 2011 and ended the year with $935 million in cash.
We also accomplished the following in terms of the execution of our business strategy in 2011:
Significantly improved adjusted operating income and adjusted operating income rate driven primarily by the increase in net sales and related expense leverage;
At Victoria's Secret, sales increased 11% and operating income increased 22%;
At Bath & Body Works, sales increased 6% and operating income increased 11%;
Returned over $2.3 billion to our shareholders through special dividends, share repurchases and our ongoing regular dividends. In January 2012, our Board of Directors approved an increase in our first quarter 2012 common stock dividend from $0.20 to $0.25 per share;
Continued expansion of company-owned Bath & Body Works and Victoria’s Secret stores into Canada;
Continued expansion of Bath & Body Works stores in the Middle East with a franchise partner;
Continued expansion of Victoria’s Secret Beauty and Accessories stores throughout the world;
Divested 51% of our third-party apparel sourcing business for pre-tax cash proceeds of $124 million; and
Continued repositioning of the La Senza brand. During the fourth quarter of 2011, we initiated a restructuring program designed to resize a portion of La Senza's store fleet and relocate its home office from Montreal, Canada to Columbus,

20


Ohio. We recognized a pre-tax charge consisting of contract termination costs, severance and other costs of $24 million in the fourth quarter of 2011.

21


Adjusted Financial Information
In addition to our results provided in accordance with GAAP above and throughout this Form 10-K, we have provided non-GAAP measurements which present operating income, net income and earnings per share in 2011, 2010 and 2009 on an adjusted basis which removes certain special items. We believe that these special items are not indicative of our ongoing operations due to their size and nature. We use adjusted financial information as key performance measures of results of operations for the purpose of evaluating performance internally. These non-GAAP measurements are not intended to replace the presentation of our financial results in accordance with GAAP. Instead, we believe that the presentation of adjusted financial information provides additional information to investors to facilitate the comparison of past and present operations. Further, our definition of adjusted financial information may differ from similarly titled measures used by other companies. The table below reconciles the GAAP financial measures to the non-GAAP financial measures. For additional information regarding the special items, see the footnotes to the table in Item 6. Selected Financial Data.
 
2011
 
2010
 
2009
Detail of Special Items included in Operating Income - Income (Expense)
 
 
 
 
 
La Senza Goodwill and Intangible Asset Impairment Charges
$
(232
)
 
$

 
$

Expense related to Contribution of Express Common Stock to The Limited Brands Foundation
(163
)
 

 

Gain on Divestiture of Third-party Apparel Sourcing Business
111

 

 

La Senza Restructuring Charges
(24
)
 

 

Gain on Divestiture of Joint Venture

 

 
9

Total Special Items included in Operating Income
$
(308
)
 
$

 
$
9

 
 
 
 
 
 
Detail of Special Items included in Other Income - Income (Expense)
 
 
 
 
 
Gain on Sale of Express Common Stock
$
86

 
$
45

 
$

Gain on Contribution of Express Common Stock to The Limited Brands Foundation
147

 

 

Gain on Express Initial Public Offering

 
52

 

Gain on Distributions from Express

 
49

 

Gain on Sale of Limited Stores Ownership Interest

 
20

 

Loss on Extinguishment of Debt

 
(25
)
 

Gain on Express Dividend

 
7

 

Total Special Items included in Other Income
$
233

 
$
148

 
$

 
 
 
 
 
 
Detail of Special Items included in Provision for Income Taxes - Benefit (Provision)
 
 
 
 
 
Tax effect of Special Items included in Operating Income
$
83

 
$

 
$
5

Tax effect of Special Items included in Other Income
(31
)
 
(27
)
 

Tax benefit related to favorable resolution of certain discrete income tax matters
56

 

 
32

Total Special Items included in Provision for Income Taxes
$
108

 
$
(27
)
 
$
37

 
 
 
 
 
 
Reconciliation of Reported Operating Income to Adjusted Operating Income
 
 
 
 
 
Reported Operating Income
$
1,238

 
$
1,284

 
$
868

Special Items included in Operating Income
308

 

 
(9
)
Adjusted Operating Income
$
1,546

 
$
1,284

 
$
859

 
 
 
 
 
 
Reconciliation of Reported Net Income to Adjusted Net Income
 
 
 
 
 
Reported Net Income
$
850

 
$
805

 
$
448

Special Items included in Net Income
(33
)
 
(121
)
 
(46
)
Adjusted Net Income
$
817

 
$
684

 
$
402

 
 
 
 
 
 
Reconciliation of Reported Earnings Per Share to Adjusted Earnings Per Share
 
 
 
 
 
Reported Earnings Per Share
$
2.70

 
$
2.42

 
$
1.37

Special Items included in Earnings Per Share
(0.10
)
 
(0.36
)
 
(0.14
)
Adjusted Earnings Per Share
$
2.60

 
$
2.06

 
$
1.23


22


2012 Outlook
The global retail sector and our business continue to face an uncertain environment and, as a result, we continue to take a conservative stance in terms of the financial management of our business. We will continue to manage our business carefully and we will focus on the execution of the retail fundamentals.
At the same time, we are aggressively focusing on bringing compelling merchandise assortments, marketing and store experiences to our customers. We will look for, and capitalize on, those opportunities available to us in this uncertain environment. We believe that our brands, which lead their categories and offer high emotional content at accessible prices, are well positioned heading into 2012.
Company-Owned Store Data

23


The following table compares 2011 company-owned store data to the comparable periods for 2010 and 2009:
 
 
 
 
 
 
 
 
% Change
  
2011
 
2010
 
2009
 
2011
 
2010
Sales per Average Selling Square Foot
 
 
 
 
 
 
 
 
 
Victoria’s Secret Stores (a)
$
754

 
$
663

 
$
581

 
14
%
 
14
%
Bath & Body Works (a)
658

 
620

 
587

 
6
%
 
6
%
La Senza (b)
409

 
397

 
420

 
3
%
 
(5
)%
Sales per Average Store (in thousands)

 

 

 

 

Victoria’s Secret Stores (a)
$
4,463

 
$
3,886

 
$
3,356

 
15
%
 
16
%
Bath & Body Works (a)
1,561

 
1,468

 
1,393

 
6
%
 
5
%
La Senza (b)
1,362

 
1,333

 
1,335

 
2
%
 
 %
Average Store Size (selling square feet)

 

 

 

 

Victoria’s Secret Stores (a)
5,941

 
5,892

 
5,830

 
1
%
 
1
%
Bath & Body Works (a)
2,374

 
2,369

 
2,370

 
%
 
 %
La Senza
3,312

 
3,343

 
3,366

 
(1
)%
 
(1
)%
Total Selling Square Feet (in thousands)

 

 

 

 

Victoria’s Secret Stores (a)
6,042

 
6,057

 
6,063

 
 %
 
 %
Bath & Body Works (a)
3,768

 
3,805

 
3,856

 
(1
)%
 
(1
)%
La Senza
762

 
843

 
869

 
(10
)%
 
(3
)%
________________
(a)
Metric relates to company-owned stores in the U.S.
(b)
Metric is presented in Canadian dollars to eliminate the impact of foreign currency fluctuations.


24


The following table compares 2011 company-owned store data to the comparable periods for 2010 and 2009:
 

25


Number of Stores (a)
 
2011
 
2010
 
2009
Victoria’s Secret U.S.
 
 
 
 
 
 
Beginning of Period
 
1,028

 
1,040

 
1,043

Opened
 
8

 
6

 
13

Closed
 
(19
)
 
(18
)
 
(16
)
End of Period
 
1,017

 
1,028

 
1,040

Bath & Body Works U.S.
 

 

 

Beginning of Period
 
1,606

 
1,627

 
1,638

Opened
 
6

 
2

 
9

Closed
 
(25
)
 
(23
)
 
(20
)
End of Period
 
1,587

 
1,606

 
1,627

La Senza
 

 

 

Beginning of Period
 
252

 
258

 
322

Opened
 

 

 
2

Closed (b)
 
(22
)
 
(6
)
 
(66
)
End of Period
 
230

 
252

 
258

Bath & Body Works Canada
 

 

 

Beginning of Period
 
59

 
31

 
6

Opened
 
10

 
28

 
25

Closed
 

 

 

End of Period
 
69

 
59

 
31

Victoria’s Secret Canada
 

 

 

Beginning of Period
 
12

 
4

 

Opened
 
8

 
8

 
4

Closed
 
(1
)
 

 

End of Period
 
19

 
12

 
4

Henri Bendel
 

 

 

Beginning of Period
 
11

 
11

 
5

Opened
 
8

 

 
6

Closed
 

 

 

End of Period
 
19

 
11

 
11

Total
 

 

 

Beginning of Period
 
2,968

 
2,971

 
3,014

Opened
 
40

 
44

 
59

Closed
 
(67
)
 
(47
)
 
(102
)
End of Period
 
2,941

 
2,968

 
2,971

 ________________
(a)
Number of stores excludes independently owned La Senza, Bath & Body Works and Victoria’s Secret stores operated by licensees and franchisees.
(b)
In 2009, we closed 53 La Senza Girl stores.

Segment Reporting Change
In the fourth quarter of 2011, we ceased aggregating La Senza with Victoria's Secret. While this reporting change did not impact our consolidated results, segment data for previous years has been recast to be consistent with the current year presentation throughout the financial statements and the accompanying notes.


26


Results of Operations—2011 Compared to 2010
Operating Income
The following table provides our segment operating income (loss) and operating income rates (expressed as a percentage of net sales) for 2011 in comparison to 2010:
 
 
 
 
 
 
Operating Income Rate
 
2011
 
2010
 
2011
 
2010
 
(in millions)
 
 
 
 
Victoria’s Secret
$
1,081

 
$
889

 
17.7
%
 
16.1
%
Bath & Body Works
513

 
464

 
19.2
%
 
18.4
%
Other (a) (b) (c) (d) (e)
(356
)
 
(69
)
 
(22.7
)%
 
(4.3
)%
Total
$
1,238

 
$
1,284

 
11.9
%
 
13.4
%
 ________________
(a)
Includes Corporate, Mast Global, Henri Bendel and our international operations including La Senza. In the fourth quarter of 2011, we divested 51% of our third-party apparel sourcing business. As such, results of this business are only included through the first three quarters of 2011. For additional information, see Note 4 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplemental Data.
(b)
2011 includes a $232 million impairment of goodwill, trade name and a lease-related intangible asset at La Senza. For additional information, see Note 8 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplemental Data.
(c)
2011 includes $163 million of expense associated with the charitable contribution of shares of Express, Inc. to The Limited Brands Foundation. For additional information, see Note 9 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplemental Data.
(d)
2011 includes an $111 million gain associated with the divestiture of the third-party apparel sourcing business. For additional information, see Note 4 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplemental Data.
(e)
2011 includes $24 million of expense at associated with the restructuring at La Senza. For additional information, see Note 5 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplemental Data.
For 2011, operating income decreased $46 million to $1.238 billion and the operating income rate decreased to 11.9% from 13.4%. Our 2011 operating income includes the impact of $308 million in special items. For additional information, see "Adjusted Financial Information". Excluding these special items, our adjusted operating income increased $262 million to $1.546 billion and the operating income rate increased to 14.9% from 13.4%. The drivers of the operating income results are discussed in the following sections.
Net Sales
The following table provides net sales for 2011 in comparison to 2010:
 
 
2011
 
2010
 
% Change
 
(in millions)
 
 
Victoria’s Secret Stores
$
4,564

 
$
4,018

 
14
%
Victoria’s Secret Direct
1,557

 
1,502

 
4
%
Total Victoria’s Secret
6,121

 
5,520

 
11
%
Bath & Body Works
2,674

 
2,515

 
6
%
Other (a)
1,569

 
1,578

 
(1
%)
Total Net Sales
$
10,364

 
$
9,613

 
8
%
________________
(a)
Includes Corporate, Mast Global, Henri Bendel and our international operations including La Senza. In the fourth quarter of 2011, we divested 51% of our third-party apparel sourcing business. As such, results of this business are only included through the first three quarters of 2011. Fourth quarter 2010 sales for the third-party apparel sourcing business were $235 million. For additional information, See Note 4 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplemental Data.

27


The following tables provide a reconciliation of net sales for 2010 to 2011:
 
 
Victoria’s
Secret
 
Bath &
Body Works
 
Other
 
Total
 
(in millions)
2010 Net Sales
$
5,520

 
$
2,515

 
$
1,578

 
$
9,613

Comparable Store Sales
521

 
132

 
(18
)
 
635

Sales Associated with New, Closed and Non-comparable Remodeled Stores, Net
25

 
(14
)
 
126

 
137

Foreign Currency Translation

 

 
20

 
20

Direct Channels
55

 
41

 

 
96

Mast Global Third-party Sales and Other

 

 
(137
)
 
(137
)
2011 Net Sales
$
6,121

 
$
2,674

 
$
1,569

 
$
10,364


The following table compares 2011 comparable store sales to 2010:
 
 
2011
 
2010
Victoria’s Secret
14
%
 
14
%
Bath & Body Works
6
%
 
5
%
Total Comparable Store Sales (a)
10
%
 
9
%
 ________________
(a)
Includes La Senza, Bath & Body Works Canada, Victoria’s Secret Canada and Henri Bendel.
For 2011, our net sales increased $751 million to $10.364 billion and comparable store sales increased 10%. The increase in our net sales was primarily a result of:
Victoria’s Secret
For 2011, net sales increased $601 million to $6.121 billion and comparable store sales increased 14%. The net sales result was primarily driven by:
At Victoria's Secret Stores, net sales increased across most categories including Pink, core lingerie, beauty and loungewear driven by a compelling merchandise assortment that incorporated newness, innovation and fashion as well as in-store execution; and
At Victoria's Secret Direct, net sales increased 4% with increases across most categories including Pink, swimwear, core lingerie and apparel driven by a compelling merchandise assortment.
The increase in comparable store sales was driven by an increase in total transactions and higher average dollar sales.
Bath & Body Works
For 2011, net sales increased $159 million to $2.674 billion and comparable store sales increased 6%. From a merchandise category perspective, net sales were driven by growth in the Signature Collection, home fragrance and antibacterial categories partially offset by a decrease in our giftset business. The increase in comparable store sales was driven by an increase in total transactions and a slight increase in average dollar sales.
Other
For 2011, net sales decreased $9 million to $1.569 billion primarily related to the divestiture of the third-party apparel sourcing business in the fourth quarter of 2011. This decrease was partially offset by new Victoria's Secret and Bath & Body Works stores in Canada, revenue from our international wholesale and franchise business and favorable currency fluctuations related to our Canadian businesses.
Gross Profit
For 2011, our gross profit increased $426 million to $4.057 billion and our gross profit rate (expressed as a percentage of net sales) increased to 39.1% from 37.8% primarily as a result of:

28


Victoria’s Secret
For 2011, the gross profit increase was primarily driven by:
At Victoria's Secret Stores, gross profit increased due to higher merchandise margin dollars as a result of the increase in net sales. The increase in merchandise margin was partially offset by an increase in buying and occupancy expenses primarily driven by higher net sales and store related activity; and
At Victoria's Secret Direct, gross profit increased due to higher merchandise margin dollars as a result of the increase in net sales. In addition, buying and occupancy expenses decreased primarily due to lower catalogue and fulfillment costs.
The gross profit rate increase was driven primarily by leverage on buying and occupancy expenses from the increase in net sales partially offset by a decrease in the merchandise margin rate due to increased product costs and promotional activity.
Bath & Body Works
For 2011, the gross profit increase was driven by higher merchandise margin dollars related to the increase in net sales. The increase in merchandise margin dollars was partially offset by an increase in buying and occupancy expenses driven by higher occupancy costs related to the increase in net sales and store related activity. The gross profit rate was flat driven by a decrease in the merchandise margin rate offset by leverage on buying and occupancy expense.
Other
For 2011, the gross profit increase was primarily driven by net sales increases in our Canadian Victoria's Secret and Bath & Body Works stores, increases in Mast Global sales as well as revenue increases from our international wholesale and franchise business. These increases were partially offset by decline in gross profit at La Senza driven by promotional activities and restructuring charges. The gross profit rate increased due to the divestiture of our third-party apparel sourcing business.
General, Administrative and Store Operating Expenses
For 2011, our general, administrative and store operating expenses increased $357 million to $2.698 billion primarily driven by $163 million of expense associated with the charitable contribution to The Limited Brands Foundation. Additionally, store selling and marketing expenses increased related to the increase in net sales, partially offset by a decrease in incentive compensation.
The general, administrative and store operating expense rate increased to 26.0% from 24.4% due to the charitable contribution to The Limited Brands Foundation.
Impairment of Goodwill and Other Intangible Assets
In the fourth quarter of 2011, we recognized charges totaling $232 million related to the impairment of goodwill, trade name, and a lease-related intangible asset at La Senza. This impairment charge is included in Impairment of Goodwill and Other Intangible Assets on the 2011 Consolidated Statement of Income. For additional information, see Critical Accounting Policies and Estimates and Note 8 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplemental Data.
In the fourth quarter of 2010, we recognized charges totaling $6 million related to the impairment of a sub-brand trade name at Victoria’s Secret. This impairment charge is included in Impairment of Goodwill and Other Intangible Assets on the 2010 Consolidated Statement of Income. For additional information, see Critical Accounting Policies and Estimates and Note 8 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplemental Data.
Divestiture of Third-party Apparel Sourcing Business
In the fourth quarter of 2011, we recognized a pre-tax gain of $111 million associated with the divestiture of 51% of our ownership interest in our third-party apparel sourcing business for pre-tax cash proceeds of $124 million. The proceeds are included in Proceeds from Divestiture of Third-party Apparel Sourcing Business within the Investing Activities section on the 2011 Consolidated Statement of Cash Flows. The pre-tax gain is included in Gain on Divestiture of Third-party Apparel Sourcing Business on the 2011 Consolidated Statement of Income. For additional information, see Note 4 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplemental Data.

29


Other Income and Expenses
Interest Expense
The following table provides the average daily borrowings and average borrowing rates for 2011 and 2010:
 
 
2011
 
2010
Average daily borrowings (in millions)
$
3,401

 
$
2,602

Average borrowing rate (in percentages)
6.6
%
 
7.0
%

For 2011, our interest expense increased $38 million to $246 million. The increase was primarily driven by an increase in average borrowings related to the March 2011 $1 billion note issuance partially offset by decrease in the average borrowing rate.
Other Income
For 2011, our other income increased $60 million to $235 million primarily due to a $147 million gain related to the charitable contribution of our remaining shares of Express, Inc. to The Limited Brands Foundation completed in July 2011 and an $86 million gain related to the sale of a portion of our shares of Express, Inc. completed in April 2011. These 2011 items are partially offset by the following 2010 items:
a $52 million gain related to the initial public offering of Express including the sale of a portion of our shares;
a $49 million gain related to a $57 million cash distribution from Express;
a $45 million gain related to the sale of Express stock;
a $20 million gain related to the divestiture of our remaining 25% ownership in Limited Stores;
a $25 million loss on the extinguishment of debt; and
a $7 million gain related to a dividend payment from Express.
Provision for Income Taxes
For 2011, our effective tax rate decreased to 30.7% from 35.6%. The 2011 rate was lower than our combined estimated federal and state statutory rate of 39.0% primarily due to the tax benefit associated with our charitable contribution of Express shares to The Limited Brands Foundation as well as the nontaxable foreign portion of the divestiture of our third-party apparel sourcing business. The 2010 rate was lower than our combined estimated federal and state statutory rate of 38.5% primarily due to the divestiture of our remaining 25% ownership in Limited Stores, which resulted in the recognition of the capital loss associated with the 2007 divestiture of 75% of our ownership in Limited Stores.
Results of Operations—Fourth Quarter of 2011 Compared to Fourth Quarter of 2010
Operating Income
The following table provides our segment operating income (loss) and operating income rates (expressed as a percentage of net sales) for the fourth quarter of 2011 in comparison to the fourth quarter of 2010:
 
Fourth Quarter
 
Operating Income Rate
 
2011
 
2010
 
2011
 
2010
 
(in millions)
 
 
 
 
Victoria’s Secret
$
447

 
$
398

 
21.4
%
 
21.0
%
Bath & Body Works
348

 
330

 
30.9
%
 
30.5
%
Other (a) (b) (c) (d)
(154
)
 
(14
)
 
(51.8
)%
 
(3.0
)%
Total
$
641

 
$
714

 
18.2
%
 
20.6
%
 ________________
(a)
Includes Corporate, Mast Global, Henri Bendel and our international operations including La Senza. In the fourth quarter of 2011, we divested 51% of our third-party apparel sourcing business. As such, results of this business are only included through the first three quarters of 2011. For additional information, See Note 4 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplemental Data.
(b)
2011 includes a $232 million impairment of goodwill, the trade name, and a lease-related intangible asset at La Senza. For additional information, see Note 8 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplemental Data.

30


(c)
2011 includes a $111 million gain associated with the divestiture of the third-party apparel sourcing business. For additional information, see Note 4 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplemental Data.
(d)
2011 includes $24 million of expense associated with the restructuring of our La Senza business. For additional information, see Note 5 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplemental Data.
For the fourth quarter of 2011, operating income decreased $73 million to $641 million and the operating income rate decreased to 18.2% from 20.6%. The drivers of the operating income results are discussed in the following sections.
Net Sales
The following table provides net sales for the fourth quarter of 2011 in comparison to the fourth quarter of 2010:
 
 
 
2011
 
2010
 
% Change
Fourth Quarter
 
(in millions)
 
 
Victoria’s Secret Stores
 
$
1,572

 
$
1,393

 
13
%
Victoria’s Secret Direct
 
518

 
503

 
3
%
Total Victoria’s Secret
 
2,090

 
1,896

 
10
%
Bath & Body Works
 
1,127

 
1,081

 
4
%
Other (a)
 
298

 
479

 
(38
)%
Total Net Sales
 
$
3,515

 
$
3,456

 
2
%
 ________________
(a)
Includes Corporate, Mast Global, Henri Bendel and our international operations including La Senza. In the fourth quarter of 2011, we divested 51% of our third-party apparel sourcing business. As such, results of this business are only included through the first three quarters of 2011. Fourth quarter 2010 sales for the third-party apparel sourcing business were $235 million. For additional information, See Note 4 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplemental Data.
The following table provides a reconciliation of net sales for the fourth quarter of 2010 to the fourth quarter of 2011:
 
 
 
Victoria’s
Secret
 
Bath & Body
Works
 
Other
 
Total
Fourth Quarter
 
(in millions)
2010 Net Sales
 
$
1,896

 
$
1,081

 
$
479

 
$
3,456

Comparable Store Sales
 
163

 
33

 
(7
)
 
189

Sales Associated with New, Closed and Non-comparable Remodeled Stores, Net
 
16

 

 
41

 
57

Foreign Currency Translation
 

 

 
(3
)
 
(3
)
Direct Channels
 
15

 
13

 

 
28

Mast Global Third-party Sales and Other
 

 

 
(212
)
 
(212
)
2011 Net Sales
 
$
2,090

 
$
1,127

 
$
298

 
$
3,515


The following table compares fourth quarter of 2011 comparable store sales to fourth quarter of 2010:
 
Fourth Quarter
 
2011
 
2010
Victoria’s Secret Stores
 
12
%
 
15
%
Bath & Body Works
 
3
%
 
6
%
Total Comparable Store Sales (a)
 
7
%
 
10
%
________________
(a)
Includes La Senza, Bath & Body Works Canada, Victoria’s Secret Canada and Henri Bendel.

31


For the fourth quarter of 2011, our net sales increased $59 million to $3.515 billion and comparable store sales increased 7%. The increase in our net sales was primarily as a result of:
Victoria’s Secret
For the fourth quarter of 2011, net sales increased $194 million to $2.090 billion and comparable store sales increased 12%. The increase in net sales was primarily driven by:
At Victoria’s Secret Stores, net sales increased across most categories, including Pink, core lingerie, loungewear and beauty driven by a compelling merchandise assortment that incorporated newness, innovation and fashion as well as in-store execution; and
At Victoria’s Secret Direct, net sales increased 3% related to increases in Pink, apparel, and core lingerie.

The increase in comparable store sales was primarily driven by an increase in total transactions and higher average dollar sales at Victoria's Secret Stores.
Bath & Body Works
For the fourth quarter of 2011, net sales increased $46 million to $1.127 billion and comparable store sales increased 3%. From a merchandise category perspective, net sales were driven by growth in the Signature Collection, home fragrance and antibacterial categories which all incorporated newness and innovation, partially offset by a decline in our giftset business. The increase in comparable store sales was driven by an increase in total transactions partially offset by our slightly lower average dollar sales.
Other
For the fourth quarter of 2011, net sales decreased $181 million to $298 million primarily related to the divestiture of the third-party apparel sourcing business in the fourth quarter of 2011. This decrease was partially offset by new Victoria's Secret and Bath & Body Works stores in Canada and revenue from our international wholesale and franchise business.
Gross Profit
For the fourth quarter of 2011, our gross profit increased $83 million to $1.528 billion and our gross profit rate (expressed as a percentage of net sales) increased to 43.5% from 41.8% primarily as a result of:
Victoria’s Secret
For the fourth quarter of 2011, gross profit increased primarily driven by:
At Victoria's Secret Stores, gross profit increased due to higher merchandise margin dollars as a result of the increase in net sales. The increase in merchandise margin dollars was partially offset by higher buying and occupancy expenses driven by higher net sales and store related activity; and
At Victoria's Secret Direct, gross profit was flat as the decrease in merchandise margin dollars driven by increased product costs and promotional activity was offset by a decrease in buying and occupancy expense.
The gross profit rate was flat driven primarily by leverage on buying and occupancy expenses from the increase in net sales offset by a decrease in the merchandise margin rate from increased product costs and promotional activity.
Bath & Body Works
For the fourth quarter of 2011, the gross profit increase was driven by higher merchandise margin dollars related to the increase in net sales.
The gross profit rate decreased driven by a decrease in the merchandise margin rate related to increased product costs and promotional activity partially offset by a decrease in buying and occupancy expense rate due to leverage associated with higher sales.
Other
For the fourth quarter of 2011, the gross profit decrease was primarily driven by the restructuring charges at La Senza and the divestiture of the third-party apparel sourcing business partially offset by net sales increases in our Canadian Victoria's Secret and Bath & Body Works stores as well as revenue increases from our international wholesale and franchise business. The gross profit rate increased due to the divestiture of the third-party apparel sourcing business in the fourth quarter of 2011 which removed lower margin sales.

32


General, Administrative and Store Operating Expenses
For the fourth quarter of 2011, our general, administrative and store operating expenses increased $40 million to $765 million primarily driven by an increase in store selling expenses and $7 million in restructuring charges related to our La Senza business.
The general, administrative and store operating expense rate increased to 21.8% from 21.0% due to the factors cited above.
Impairment of Goodwill and Other Intangible Assets
In the fourth quarter of 2011, we recognized charges totaling $232 million related to the impairment of goodwill, the trade name and a lease-related intangible asset at La Senza. This impairment charge is included in Impairment of Goodwill and Other Intangible Assets on the 2011 Consolidated Statement of Income. For additional information, see Critical Accounting Policies and Estimates and Note 8 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplemental Data.
In the fourth quarter of 2010, we recognized charges totaling $6 million related to the impairment of a sub-brand trade name at Victoria’s Secret. This impairment charge is included in Impairment of Goodwill and Other Intangible Assets on the 2010 Consolidated Statement of Income. For additional information, see Critical Accounting Policies and Estimates and Note 8 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplemental Data.
Gain on Divestiture of Third-party Apparel Sourcing Business
In the fourth quarter of 2011, we recognized a pre-tax gain of $111 million associated with the divestiture of 51% of our ownership interest in our third-party apparel sourcing business for pre-tax cash proceeds of $124 million. The proceeds are included in Proceeds from Divestiture of Third-party Apparel Sourcing Business within the Investing Activities section on the 2011 Consolidated Statement of Cash Flows. The pre-tax gain is included in Gain on Divestiture of Third-party Apparel Sourcing Business on the 2011 Consolidated Statement of Income. For additional information, see Note 4 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplemental Data.
Other Income and Expense
Interest Expense
The following table provides the average daily borrowings and average borrowing rates for the fourth quarter of 2011 and 2010:
 
Fourth Quarter
 
2011
 
2010
Average daily borrowings (in millions)
 
$
3,556

 
$
2,560

Average borrowing rate (in percentages)
 
6.8
%
 
7.1
%

For the fourth quarter of 2011, our interest expense increased $15 million to $63 million primarily driven by an increase in average borrowings related to the March 2011 $1 billion note issuance, partially offset by a decrease in the average borrowing rate.
Other Income
For the fourth quarter of 2011, our other income decreased $51 million to $2 million. The decrease was primarily driven by a $45 million gain related to the sale of Express common stock in 2010 and a $7 million gain related to a dividend payment from Express in 2010.
Provision for Income Taxes
For the fourth quarter of 2011, our effective tax rate increased to 38.0% from 37.0%. The 2011 rate was lower than our combined estimated federal and state statutory rate of 39.0% primarily due to the tax benefit associated with the nontaxable foreign portion of the divestiture of our third-party apparel sourcing business. The 2010 rate was lower than our combined estimated federal and state statutory rate of 38.5% primarily due to the resolution of certain tax matters.


33


Results of Operations—2010 Compared to 2009
Operating Income
The following table provides our segment operating income (loss) and operating income rates (expressed as a percentage of net sales) for 2010 in comparison to 2009:
 
 
 
 
 
 
Operating Income Rate
 
2010
 
2009
 
2010
 
2009
 
(in millions)
 
 
 
 
Victoria’s Secret
$
888

 
$
579

 
16.1
%
 
11.8
%
Bath & Body Works
464

 
358

 
18.4
%
 
15.0
%
Other (a) (b)
(68
)
 
(69
)
 
(4.3
)%
 
(5.0
)%
Total
$
1,284

 
$
868

 
13.4
%
 
10.1
%
 ________________
(a)
Includes Corporate, Mast Global, Henri Bendel and our international operations including La Senza. See "Segment Reporting Change".
(b)
2009 includes a $9 million gain associated with the reversal of an accrued contractual liability. For additional information, see Note 9 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data.
For 2010, operating income increased $416 million to $1.284 billion and the operating income rate increased to 13.4% from 10.1%. The drivers of the operating income results are discussed in the following sections.
Net Sales
The following table provides net sales for 2010 in comparison to 2009:
 
 
2010
 
2009
 
% Change
 
(in millions)
 
 
Victoria’s Secret Stores
$
4,018

 
$
3,496

 
15
%
Victoria’s Secret Direct
1,502

 
1,388

 
8
%
Total Victoria’s Secret
5,520

 
4,884

 
13
%
Bath & Body Works
2,515

 
2,383

 
6
%
Other (a)
1,578

 
1,365

 
16
%
Total Net Sales
$
9,613

 
$
8,632

 
11
%
________________
(a)
Includes Corporate, Mast Global, Henri Bendel and our international operations including La Senza. See "Segment Reporting Change".
The following tables provide a reconciliation of net sales for 2009 to 2010:
 
Victoria’s
Secret
 
Bath &
Body Works
 
Other
 
Total
 
(in millions)
2009 Net Sales
$
4,884

 
$
2,383

 
$
1,365

 
$
8,632

Comparable Store Sales
453

 
105

 
(8
)
 
550

Sales Associated with New, Closed and Non-comparable Remodeled Stores, Net
69

 
(6
)
 
51

 
114

Foreign Currency Translation

 

 
41

 
41

Direct Channels
114

 
33

 

 
147

Mast Global Third-party Sales and Other

 

 
129

 
129

2010 Net Sales
$
5,520

 
$
2,515

 
$
1,578

 
$
9,613



34


The following table compares 2010 comparable store sales to 2009:
 
 
2010
 
2009
Victoria’s Secret
14
%
 
(6
)%
Bath & Body Works
5
%
 
(1
)%
Total Comparable Store Sales (a)
9
%
 
(4
)%
 ________________
(a)
Includes La Senza, Bath & Body Works Canada, Victoria’s Secret Canada and Henri Bendel.
For 2010, our net sales increased $981 million to $9.613 billion and comparable store sales increased 9%. The increase in our net sales was primarily a result of:
Victoria’s Secret
For 2010, net sales increased $636 million to $5.520 billion and comparable store sales increased 14%. The net sales result was primarily driven by:
At Victoria’s Secret Stores, net sales increased across most categories including Pink, core lingerie and beauty driven by a compelling merchandise assortment that incorporated newness, innovation and fashion; and
At Victoria’s Secret Direct, net sales increased 8% with increases across most categories, including intimates and swimwear driven by a compelling merchandise assortment.
The increase in comparable store sales was driven by an increase in total transactions and higher average dollar sales.
Bath & Body Works
For 2010, net sales increased $132 million to $2.515 billion and comparable store sales increased 5%. From a merchandise category perspective, net sales were driven by growth in the Signature Collection (including the re-launch of the men’s line), home fragrance and antibacterial categories which all incorporated newness and innovation. The increase in comparable store sales was driven by an increase in total transactions and higher average dollar sales.
Other
For 2010, net sales increased $213 million to $1.578 billion related to new Bath & Body Works stores in Canada, the introduction of Victoria’s Secret stores in Canada, revenue from our international wholesale and franchise business and an increase in third-party sales at Mast Global. In addition, Mast Global recognized 100% of merchandise sourcing sales to Express and Limited Stores in the third and fourth quarters of 2010. For additional information, see Note 9 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data. The increase in net sales was partially offset by a decrease in net sales at La Senza due to the closure of the La Senza Girl freestanding stores, a decline in the La Senza International business due to exiting the La Senza Girl concept as well as decreases in the sales of sleepwear and beauty in our Canadian stores.
Gross Profit
For 2010, our gross profit increased $603 million to $3.631 billion and our gross profit rate (expressed as a percentage of net sales) increased to 37.8% from 35.1% primarily as a result of:
Victoria’s Secret
For 2010, gross profit increased at Victoria’s Secret Stores and Victoria’s Secret Direct driven by higher merchandise margin dollars as a result of the increase in net sales and decreased promotional activity.
The increase in the gross profit rate was driven primarily by an increase in the merchandise margin rate due to the factors cited above. In addition, the buying and occupancy expense rate decreased due to leverage associated with higher net sales.
Bath & Body Works
For 2010, gross profit increased primarily driven by higher merchandise margin dollars due to an increase in net sales and a decrease in cost of goods sold due to cost reductions.
The increase in the gross profit rate was driven by increases in the merchandise margin rate due to the factors cited above.

35


Other
For 2010, gross profit increased primarily driven by higher merchandise margin dollars primarily related to the expansion of our Canadian Bath & Body Works and Victoria’s Secret stores. The gross profit rate decreased due to an increase in lower margin Mast Global third-party sales, including the impact of recognizing 100% of Mast Global’s sales to Express and Limited Stores in the third and fourth quarters of 2010. For additional information, see Note 9 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data.
General, Administrative and Store Operating Expenses
For 2010, our general, administrative and store operating expenses increased $175 million to $2.341 billion primarily driven by:
an increase in store selling expenses, which includes costs related to new stores in Canada;
higher payroll including incentive compensation costs;
higher stock compensation costs due to a lower forfeiture rate as a result of lower associate turnover; and
an increase in marketing expenses.
The general, administrative and store operating expense rate decreased to 24.3% from 25.1% due to leverage associated with higher net sales.
Impairment of Goodwill and Other Intangible Assets
In the fourth quarter of 2010, we recognized charges totaling $6 million related to the impairment of a sub-brand trade name at Victoria’s Secret. This impairment charge is included in Impairment of Goodwill and Other Intangible Assets on the 2010 Consolidated Statement of Income. For additional information, see Critical Accounting Policies and Estimates and Note 8 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplemental Data.
In the fourth quarter of 2009, we recognized charges totaling $3 million related to the impairment of the La Senza Girl trade name and other minor trade names. This impairment charge is included in Impairment of Goodwill and Other Intangible Assets on the 2009 Consolidated Statement of Income. For additional information, see Critical Accounting Policies and Estimates and Note 8 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplemental Data.
Net Gain on Joint Ventures
In July 2009, we recognized a pre-tax gain of $9 million ($14 million net of related tax benefits) associated with the reversal of an accrued contractual liability as a result of the divestiture of a joint venture. The pre-tax gain is included in Net Gain on Joint Ventures on the 2009 Consolidated Statement of Income.
Other Income and Expenses
Interest Expense
The following table provides the average daily borrowings and average borrowing rates for 2010 and 2009:
 
 
2010
 
2009
Average daily borrowings (in millions)
$
2,602

 
$
2,982

Average borrowing rate (in percentages)
7.0
%
 
6.7
%

For 2010, our interest expense decreased $29 million to $208 million. The decrease was primarily driven by a decrease in average borrowings, partially offset by the increase in average borrowing rates. For 2010, our interest expense included $10 million of expense associated with terminating our remaining participating interest rate swap arrangements. For 2009, our interest expense included $10 million in fees which were expensed associated with the amendment of our Revolving Facility and Term Loan and $8 million of expense associated with terminating certain participating interest rate swap arrangements.
Other Income
For 2010, our other income increased $156 million to $173 million primarily due to:
a $52 million gain related to the initial public offering of Express including the sale of a portion of our shares;
a $49 million gain related to a $57 million cash distribution from Express;

36


a $45 million gain related to the sale of Express stock;
a $20 million gain related to the divestiture of our remaining 25% ownership in Limited Stores;
a $7 million gain related to a dividend payment from Express; and
higher income from our equity investments in Express and Limited Stores.
Partially offset by:
a $25 million loss on extinguishment of a portion of our 2012 and 2014 Notes.
Provision for Income Taxes
For 2010, our effective tax rate increased to 35.6% from 31.1%. The 2010 rate was lower than our combined estimated federal and state statutory rate of 38.5% primarily due to the divestiture of our remaining 25% ownership in Limited Stores, which resulted in the recognition of the capital loss associated with the 2007 divestiture of 75% of our ownership in Limited Stores. The 2009 rate was lower than our combined estimated federal and state statutory rate primarily due to the reversal of deferred tax liabilities on unremitted foreign earnings due to international restructuring and the resolution of certain tax matters in 2009.
Results of Operations—Fourth Quarter of 2010 Compared to Fourth Quarter of 2009
Operating Income
The following table provides our segment operating income (loss) and operating income rates (expressed as a percentage of net sales) for the fourth quarter of 2010 in comparison to the fourth quarter of 2009:
 
 
Fourth Quarter
 
Operating Income Rate
 
2010
 
2009
 
2010
 
2009
 
(in millions)
 
 
 
 
Victoria’s Secret
$
398

 
$
318

 
21.0
%
 
19.1
%
Bath & Body Works
330

 
294

 
30.5
%
 
29.2
%
Other (a)
(14
)
 
(26
)
 
(3.0
)%
 
(6.8
)%
Total
$
714

 
$
586

 
20.6
%
 
19.1
%
 ________________
(a)
Includes Corporate, Mast Global, Henri Bendel and our international operations including La Senza. See "Segment Reporting Change".
For the fourth quarter of 2010, operating income increased $128 million to $714 million and the operating income rate increased to 20.6% from 19.1%. The drivers of the operating income results are discussed in the following sections.
Net Sales
The following table provides net sales for the fourth quarter of 2010 in comparison to the fourth quarter of 2009:
 
 
2010
 
2009
 
% Change
Fourth Quarter
 
(in millions)
 
 
Victoria’s Secret Stores
 
$
1,393

 
$
1,201

 
16
%
Victoria’s Secret Direct
 
503

 
463

 
9
%
Total Victoria’s Secret
 
1,896

 
1,664

 
14
%
Bath & Body Works
 
1,081

 
1,008

 
7
%
Other (a)
 
479

 
391

 
23
%
Total Net Sales