Bath & Body Works Inc (BBWI) 2003 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Limited Brands third quarter earnings call. At this time all participants are in a listen only mode. Later we will conduct a question and answer session and instructions will follow at that time. As a reminder, this conference is being recorded. Ladies and gentlemen, thank you for standing by. I would now like to turn the call over to Mr. Tom [Catsenmeyer] Vice President of Investor Relations. You may begin.

Good morning, and thank you, everyone, welcome to the Limited Brands third quarter earnings conference call for the period ending Saturday, November 1, 2003. Before I begin I need to remind you that any forward-looking statements we may make today are subject to our Safe Harbor statement that is found in our S.E.C. filings. Our third quarter earnings release and related financial information are available on our website, Limited Brands.com. This call is being taped and can be replayed by dialing 1-800-337-6551 followed by the pass code 583. You can also listen to an audio replay from our website.

Ann Hailey, EVP and Chief Financial Officer, [Neil Fiske] CEO of Bath & Body Works and Ken Stevens, President of Bath & Body Works are all joining me this morning. Stuart Bergdorfer, Senior VP and Controller and Tracey Travis Senior VPS Finance are also with us. We will be available to answer questions at the end of our prepared remarks. Amy Preston has also joined us.

I will start with a brief overview of third quarter results first overall and then by brand. Then Neil and Ken will comment on Bath & Body Works and Ann will close our prepared remarks with comments about our financials.

Our GAAP results have been reported in our press release. All results reported on this call are adjusted results which include the ones outlined in our press release. A reconciliation of GAAP to adjusted results is included in the press release and is also available from our website.

For the third quarter, sales were 1.847 billion compared to 1.768 billion last year. Comps for the quarter were up 2%. Third quarter earnings per share were 8 cents versus 2 cents last year. This year's result includes interest income of three cents per share related to an interest refund from a tax settlement and a gain of one cent per share related to the sale of the structured trademark to Sears. Increases in operating income at Victoria's Secret and Bath & Body Works were partially offset by a decline of the apparel segment.

Gross margin increased 30 basis points in the quarter to 32.2%. The third quarter SG&A rate improved by 90 basis points to 30%.

Now for the brand and segment results, and as usual you should have the following headings across your page: Sales Comps, External Gross Margin Rates, Operating Income Rate and Operating Income Dollars. I will begin with the Victoria's Secret segment. At Victoria's Secret stores, which includes beauty, sales in the third quarter were 556.6 million, comps were 5%, external gross margin rate was up, operating income rate and operating income dollars were both up significantly. Another solid quarter at Victoria's Secret. Sales growth was driven by increases in bras and panties in the Body by Victoria, Angels and Very Sexy sub-brands. Health and beauty was driven by the introduction of Breathless, the continued strength of Very Sexy For Her and Garden Performance.

At Victoria's Secret direct sales in the third quarter were $176.8 million, that's plus 9% for last year, and external gross margin rate operating income rate and operating income dollars were all up significantly at Victoria's Secret direct. Direct achieved a record third quarter profit result driven by strong growth in bras, panties, and clothing. The internet continues to experience strong growth also.

For the Victoria's segment in total, sales in the third quarter were 733.4 million, that is again 677.5 million last year. The comps again were plus 5%, external gross margin rate was up, operating income rate was 11.6% against 8.5% last year. Operating income dollars were 84.4 million. That's against 57.3 million last year, 84.8 million, I'm sorry, again, operating income dollars at the segment were 84.8 million against 57.3 million last year.

For the Bath & Body Works segment, sales in the third quarter were 320.3 million. That's against 309.3 million last year. Comps in the quarter were up 3%. External gross margin rate was up. Operating income income rate was 1.4% versus .7% last year and operating income dollars were 4.6 million versus 2.2 million last year.

Next the Total Apparel segment. Sales in the third quarter were 663.2 million versus 675.4 million last year. Comps were minus 2% in the segment. External gross margin rate was about flat. Operating income rate was negative, 1.3% versus negative 4.4% last year. Negative .4% last year. That's a loss of 8.9 million this year versus a loss of 2.8 million last year.

Now for the individual apparel brand results beginning with Express. At express sales in the third quarter were 503.7 million. Comps were minus 2%. External gross margin rate, operating income rate and operating income dollars were all down significantly. Express's women's third quarter performance was disappointing as they experienced weakness in key categories, including denim and sweaters. Men's results improved in the quarter with positive comps. It limited stores sales in the third quarter were 159.5 million; comps were flat. External gross margin rate, operating income rate and operating income dollars were all up significantly. Although Limited stores lost money in the third quarter, the result represented a significant improvement from last year with particular strength in cut-and-sew tops, sweaters and pants. That concludes my prepared comments. Now I would like to turn it over to Neil [Fisk] and Ken Stevens.

Thank you, and good morning everyone. This is Neil. This morning I will provide you with an update of our progress at Bath & Body Works and then Ken will discuss our third quarter results and our fourth quarter plans.

Bath & Body Works is at the very beginning of a turn-around after a two to three-year decline. To provide some perspective, if our turn-around were a baseball game, I would say we were only in the bottom of the second inning. Our turn-around is based on investing and repositioning in three key areas. First a new brand position, second product commercialization and third revamping our approach to marketing and promotion.

With respect to the new brand positioning, most of you know that we are evolving the brand from the Heartland Gingham positioning to the Modern Apothecary of Beauty and Well- Being. We are accomplishing this through the introductions of more sophisticated high quality products as well as through a face lift to the look of our stores. In the third quarter we launched three new product lines and we installed new apothecary fixtures in about half the stores in the chain. In our flagship stores our own assortment is supplemented by a carefully edited group the world's best specialty brands. We will have 38 of these stores open by year end.

The second key area of focus is product commercialization. Our efforts in this area are concentrated on escalating innovation while raising the bars on quality and consumer advocacy.

Last but not least, we are revamping our approach to marketing and promotion. We are developing an integrated marketing platform that encompasses a long term concept calendar, customer relationship management and multi channel leverage. We are executing shorter floor sets for a greater refresh factor evolving our marketing activities to a more focused targeted set of promotions and layering a combination of in-store direct mail and internet marketing. With that as an overview of our long term focus and direction, and the turn-around of the Bath & Body Works brand, I will turn it over to Ken.

Thanks, Neil. Good morning, everyone. Bath & Body Works has made measured progress so far this year, and this is our second consecutive quarter with positive comps and an improved operating profit result. As Neil mentioned, we introduced three new product lines in the third quarter. In August, we launched Bath & Body Works Benefits, an advanced skin care collection with anti aging, firming and healing products. Pure Simplicity, our proprietary natural face and body care line, launched in September, and White Barn New York, a line of candles with higher fragrance levels and more sophisticated scents debuted in 245 stores at the end of September. Although the Pure Simplicity and Bath & Body Works benefit launches did not meet our initial expectations we plan to restage and relaunch Pure Simplicity in early spring with new marketing that better defines the benefits of the line.

Our first holiday floor set, Live Joyfully, began on October 20 and is primarily focused on home fragrance. After this coming weekend the store will shift to a focus on gifting. The holiday gift set assortment this year offers gifts across more product categories, more entry price points and a better price to value ratio. In January, we are going to apply earnings from the Victoria's semiannual sales to a can't miss miss sale environment. We will be supporting the fourth quarter with significant increases in direct mail. With that I will turn the discussion over to Ann.

Thank you, Ken. Good morning, everyone. Our third quarter earnings results were 8 cents per share. Excluding the 4 cents related to the interest refund and the trademark sale, this result is consistent with the 4 cent expectations we communicated at the beginning of the quarter. For the quarter our gross margin rate improved by 30 basis points, primarily driven by leverage in buying and occupancy expense. We achieved a 90 basis point improvement in the SG&A rate, primarily due to leverage in store selling expenses. Total expense dollars were about 1% higher than last year.

Our balance sheet continues to be strong, we ended the quarter with $1.8 billion in cash. During the quarter we completed our 150 million share repurchase authorization under which we repurchased a total of 9.9 million shares at an average cost of about $15 per share. As you know, our board has authorized an additional $100 million program.

Turning to the fourth quarter, at this time we are comfortable with the current fourth quarter consensus earnings estimates of 74 cents per share. This earnings estimate is predicated on mid-single digit positive comps, a slight decline in the gross margin rate and SG&A cost leverage.

For the quarter we are cautiously optimistic about trends at Victoria's Secret and Bath & Body Works. As you know these two brands comprise about 70% of our retail fourth quarter sales and almost 90% of our our retail profits. Victoria's Secret has momentum across all channels entering into the holiday period and will be supported with strong marketing as evidenced by the televised fashion show last night.

At Bath & Body Works, we have a strong gift set presentation and early reads are encouraging. With respect to the apparel brands, we are pleased with Limited stores which delivered an improved third quarter and is showing early strength in the holiday assortment.

Performance at Express will continue to be challenging primarily due to assortment issues and the difficulty of transitioning from last year's promotional volume.

With respect to the capital, we estimate that our spending in 2003 will be about 310 million.

On inventory, we ended the quarter up 4 cents per square foot at cost and down 8% per square foot at the apparel segment. In the fourth quarter, we expect apparel inventories to be up slightly per square foot and total inventories per square foot to be up, driven by increases in four styles at Victoria's Secret and by new launch products at Bath & Body Works. And with that, I will turn it back over to Tom for the Q&A.

Thanks, Ann. Operator, we are ready to begin that process. As listeners can probably tell, we are in different locations today. I am going to continue to moderate the call. We want to ask everyone again, one question only. We have a long line of people who have already dialed in for that. So that being said, Operator I am going to turn it back to you.

Okay. Thank you, at this time we are we are ready to begin the question and answer session. If you would like to ask a question please press star 1 you will be announced prior to asking your question. If you would like to withdraw your question please press star 2. Once again to and a question please press star 1. Our first question comes from Dana Telsey of Bear Stearns.

Good morning, every one. Can you talk a little bit on the apparel division? I saw the gross margin was flat, operating income obviously down. Seems like if the gross margin was flat what happened on the expense side? How are you managing that? And just lastly can you talk about China and any impact on the quotas being discussed? Thank you.

Dana, we will go to Tracey Travis with your question about apparel.

Okay. Well, Dana, we had mixed results between the two businesses which yielded a flat gross margin. So the gross margin was actually up at Limited stores and it was down at Express. Both brands were not able to leverage expenses given the flat comps, hence the operating income results.

Thanks, Tracie, we are ready for the next question. Operator.

Our next question comes from of Lauren Levitan of SG Collin.

Thanks, my question's for Neil and Ken. You commented that during the fourth quarter you'll be supporting BBW with greater direct marketing. Can you talk about some changes in the marketing program and give us a sense of--in terms of dollars, and circulation and message? Thanks very much

Thanks, Lauren. We will go out to Ken Stevens for that question .

We increased circulation dramatically in the fourth quarter, specifically around three key mailings. One is in our first floor set, so that is already out. The second one, which is kind of a recontact direct mail, which actually started hitting, started hitting yesterday and then a January sale direct mail which won't hit until after Christmas. Like the other divisions, we are beginning to wean ourselves off of the full shop discounts, although you will still see some of that in BBW through the fourth quarter.

Thanks, Ken. Our next question, operator?

Tom Filandro from SIG. You may ask your question.

Hi, I guess maybe this is a question for Ann. On Express, just given the commentary, Ann, could we get a little more clarity around what we should be thinking in terms of comps for the remainder of the quarter? You know, given the promotional cadence change, I know it is probably difficult but with us--but just a thought maybe on November, December, January?

Thanks, Tom. Ann?

Well, as you know, we don't predict comp by brand or predict comps out. And we have not given November guidance. What I can say--on comps--what I can say in general is that you can expect to see the same change in pattern we saw in the third quarter as we move away from promoting everything in the store. So you would expect to see relatively poorer comps in the first two-months and strong comps as we go into the large semiannual quarterly sales period.

Thanks, Ann. Operator, next question?

Richard Baum from Credit Suisse First Boston. You may ask your question.

I am going to sneak in a two-part question here. Comments on exactly what the issues are with the Express assortment in the fourth quarter and with regard to the Pure Simplicity launch, take aways about why you think the launch was below plan and any specific changes that you are making with regard to the relaunch in the spring. Thank you.

We are going to go out to Neil and Ken for comments on Pure Simplicity.

Good. It's Neil. First, a little bit of context of--on Pure Simplicity. We first introduced this into test market in July and it got a very favorable result. Based on that that favorable result we raised our plan and expectation for the line fairly substantially. And so when we launched it in September, we fell short of our expectations, but it is important to realize that that was very much of a revised upward plan. That is point number one.

Point number two, we also changed our strategy in what we are trying to do with Pure Simplicity. As you all know, we are category dominant in the core Bath & Body categories. We have never had a tremendously successful facial skin care business, and we made the strategic decision with this launch that we would focus on the facial skin care part of the line to try to build that overtime. That is a longer term investment in building that business. It's harder, it takes work, it takes time, and that is really where we put the focus of the effort. And against that objective, we view the launch as quite successful. Almost 70% of our sales during the Pure Simplicity launch were in facial skin care products.

They have gotten a tremendous response from our customers, and we are quite confident that we cannot only build the facial skin care business but take the positioning of that line, which had a lot of appeal to our customers, and broaden it into the core Bath & Body categories. We will be relaunching it in the spring, and we will hit it in a major way in January and then come back later in the spring and relaunch it again.

I would also point out that the pumpkin mask of the Pure Simplicity line has been highlighted on--by Oprah Winfrey in her magazine and we believe it will be on the Oprah Winfrey show. So we have gotten a very positive response to the line. I think it is important to understand that we are just at the beginning of building that product line over time.

Neil. Thank you very much. Operator, next question?

Our next question comes from [Emme Kozloff ] Sanford Bernstein.

Hi, question for Neil. In terms of Bath & Body Works, while your operating margin improved you are still at 1/10 of the level of 2,000 yet sales are higher now and gross margins have been flat to improving in the last two-years. So can you articulate what is a reasonable margin recovery to expect or are you just going to remain structurally disadvantaged versus the past? Thanks.

I think we will go out to Tracey Travis for that question.

Okay.

In the past, we have been very fortunate to have very high margins related to our products. As we diversify the portfolio into more, our higher efficacy products like Pure Simplicity, we are testing a number of third party products, as you all know, and we are looking at other categories and lines in the store. We do expect there to be lower margins, slightly lower margins as it relates to some of those brands.

So I don't want to expect that we are going to have the high margin flow through that we saw off of the highly productive Daily Ritual line that we have had in the past. The other shift that we are seeing, and you can see it as somewhat in the third quarter results, and we do expect this to continue. We also had heavy real estate investment in the past as we were opening, you know, anywhere between 150 and 250 new stores.

And right now, our strategy is to remodel the balance of the core stores to be more in the apothecary fixture line--we did about half of those stores this year and we will do the other half next year sometime, but our real strategy is to focus on the flagship stores, and the number of those stores are much less than the openings we saw in the past. So we will see some favorable leverage in the stores area as it relates to that.

Thanks, Tracie. Next question please?

John Morris of [Emme Kozloff ]. You may ask your question.

Thanks, good morning everyone. The challenging assortment issues you talked about at Express. Can you be more specific, give us some real color but with more of an eye towards how you see that playing out in the fourth quarter, overall assortment? Thanks.

John, thanks for following up with that question. We will go out to Tracey Travis.

Okay. Let me talk first about third quarter performance because we are early into fourth quarter for Express and just getting into the holiday season. Third quarter obviously was not a strong one for Express. They stopped a lot of the incentive marketing, as Ann mentioned in September. In September while we had our volcanic sales to clear distress items, the overall month post-sale was relatively weak, and, again, they were lacking a lot of incentive marketing activities.

As far as items that were good in the assortment in Q3, and actually did sell we will, women's knit tops continue to perform strongly in the third quarter. There was a cotton T, a sweatshirt and knit shirt that performed well. There were a couple of casual bottoms that performed well in--and the editor pant which Michael talked about at the analyst conference for those of you who were there, is the number one item in the company and continues to perform well and continues to perform well into the fourth quarter. Those items could not offset the declines in the balance of the assortment and in Q3 in particular, denim was disappoint--very disappointing, sweaters were disappointing.

Fourth quarter again, woven pants, editor pant is still performing well. Right now, sweaters and denim are also a little bit disappointing but we haven't gotten yet fully into the holiday season. We are doing a sweater promotion right now at express with select sweaters. There are other in store type of category and key item promotions, again reflecting our shift and change of strategy from incentives, direct mail and in-store bounce back type marketing to more key focused item and category promotion, so you will see some of that activity for the balance of the season. But right now, the early signs are disappointing and those categories that were disappointing in Q3.

Thanks, Tracie. Next question?

Margaret Gregor from Goldman Sachs.

Hi, it's Margaret M. Mager. How are you? Could you just tell us what is going on with the changing trade situation in the bra category in particular, and what impact this might have on Victoria's Secret?

Thank you, Margaret we will go to Tracey Travis for that question.

Margaret, if you are referring to China, the China situation we anticipated that the U.S. would impose safe guards on China and we prepared for the contingency. Our master organization has been diversifying their product sourcing for quite some time. And, we are in countries , not only for bras, but for apparel as well, we have diversified into countries bike Sri Lanka, and India and Vietnam. Right now there will be no short-term impact on the business--the long term impact will be a function of the demand and subsequent cost of quota in China. But, again, given the longer term strategy that we have employed at diversifying our supplier base; we are not concerned at this time about those quotas.

Thanks Tracie, next question.

Our next question comes from Jeff [Cleinfelter] of U.S. Bancorp Piper Jaffrey .

Yes, my question, I believe it's for Ann, it's regarding traffic trends, and that's been certainly a challenging part of the retail environment the last several quarters. Your mid single digit comp guides for Q4 seem flat in year over year in comparison with Q3. Can you talk about the current traffic environment and really how the traffic is -- impacting apparel versus Victoria's Secret versus Bath & Body Works. Are you getting better transaction off of the traffic in the malls in any one of those three?

Ann.

Well, I think that it's implied in our comments that Victoria's Secret brand and Bath & Body Works brand are able to --and Limited stores--are able to convert on what I would describe as a slightly improved traffic environment in terms of their third quarter results and early reactions to their holiday assortment. My expectations for the fourth quarter is that it will be somewhat better than last year. The economy has improved. There still remains some troubling notes both domestically in terms of unemployment and internationally in terms of acts of terrorism. Therefore, I think that traffic will be better this holiday, but too soon to know how strong it will be.

Thanks, Ann. Next question?

Our next question is from Richard Jaffe UBS.

Good morning guys. Question: by division, the incremental change in marketing efforts year over year--direct mail, TV, print for the three divisions, if you could take us through that, that would be very helpful.

Richard, we will go out to Tracie for that question.

I believe Ken and Neil said about the direct mail activity already for Bath & Body Works. I think you have already heard their holiday promotion. With respect to Victoria's Secret, I hope most of you stayed up late to watch the fashion show last evening. That is our kickoff to holiday promotion. We are obviously running media behind that as well as the very sexy pushup without padding bra. Our TRPs year over year are up slightly from a media standpoint both in Q3 and Q4 for Victoria's Secret.

In addition to direct mail we are continuing the programs we have discussed over the last few quarters with respect to direct mail that really is geared towards trial on our bra sub brands so we are continuing and actually with increased levels the body by Victoria's program and the Angel and we're also running a sampling program on some of our beauty sub--fragrances that line up with the bra sub-fragrances--Angels as well. So those are the plans for Victoria's Secret.

We also announced on the fashion show for you--those of you who watched it last night a one-day promotion today where you can come into the store, buy any product at Victoria's Secret and get a free Sting cd. That is in our lingerie business.

Within beauty, we have a couple of things going on, one again tied to the fashion show, and it was announced on the fashion show, that is with a purchase get a free lip palette with a $35 purchase in any of our beauty stores. And we've also got a purchase with purchase program going on in our beauty stores as well-- Max and Lucy, the beauty business, has had collectible items over the last several holidays, and Max and Lucy are those items for this holiday. So those are the programs that we currently have in place for our Victoria's Secret brand. With respect to apparel, again, as Ann mentioned, the shift is to key item promotions and category promotions for the balance of the holiday and then in January a clearance sale to clear the distressed items again.

This is Ann. The only thing I would add is we are having a denim sale supported by TV for express in early December.

Thanks. Next question.

Kimberly C. Greenberger of Lehman Brothers. You may ask your question.

Thank you. My question is on Bath & Body Works. The operating income rate up this year. If you can talk about whether that was driven by product margin or SG&A leverage, and on a go forward basis does the ability to improve the operating income rate at BBW depend on achieving a positive comp?

Kimberly, thanks. We will go out to Neil and Ken for that question.

This is Ken. I think the primary driver for us--or one of the primary drivers, not the only primary driver--and it kind of relates to an earlier question is how we are changing our promotional strategy and actually reducing the numbers and amount of in-store promotion, and being a lot more targeted and delivering most of those through direct mail. As a result, we are seeing a dramatic drop in markdown expenditures some of which we can reinvest into other forms of marketing. So that's kind of the primary driver there.

And the only thing I would add to that is, yes, it is also very dependent on comp growth going forward to drive results.

Thanks, Tracie. Next question?

Our next question comes from Dorothy Lakner of CIBC World Markets.

Good morning, thanks every one. Just a follow-up in terms of the apparel businesses, what level of comp would be necessary to leverage expense there?

Thanks, Dorothy. We will go out to Tracie again for that.

It would require low to mid mid mid single-digit comps in order to leverage expenses with our apparel brands.

Next question.

Mark Friedman from Merrill Lynch. You may ask your question.

Thank you. Good morning, everybody. Ken and Neil, I was wondering if you could talk a bit at all about the response to the Live Joyfully line and then could you talk to us about the transaction as you are getting Live Joyfully I guess up this week. How are you going to adjust the store so there is a smooth flow in the focus? Thanks.

Thanks, we will go out to Neil and Ken obviously.

We will sort of tag team this one. The response to Live Joyfully has been quite strong and we are very pleased with the results of our holiday one floor set. The primary difference between holiday one, Live Joyfully and holiday two Give Joyfully is a difference in consumer mindset, where in holiday one, our consumers are focused somewhat on gifting, but there is there is still a lot of self - purchases going and--on and they are really getting their homes ready for the holidays, and the idea of Live Joyfully is to have a dominant statement at the front of the store in home fragrance with our perfect Christmas line which is also new this year and is also doing quite well and exceeding our expectations.

When we shift to holiday two, Give Joyfully, the consumer mindset has shifted to intense last-minute time compressed gift giving, and that our store will reflect a total dedication to the gifting business. The other thing that is different this year that Ken can touch on is, we are broadening our strategy from a focus just on gift sets to winning at gifting, whether it is create your own gifts, gift cards or gift sets.

Great, Neil. This is Ken. As a last point to that example, we have seen better than expected results from our seasonal fragrances, these are in and out fragrances that we do every year for the holiday season, actually to the point where we initially started this theme with them on a deal and moved them to regular price several weeks ago. In addition, we have seen some great early response to the overall gift set collection and have made some pricing adjustments accordingly as well. So overall, we are feeling very good about this theme that is about to end, and look forward to the next set.

Thank you. Operator, we have time for three more questions.

Jennifer Black of Jennifer Black and Associates. You may ask your question.

Good morning. I think this question is for Neil. I wanted to know what your response rate was to your first direct piece of marketing?

Why don't we go to Tracie for that question if we can.

Okay.

For the first direct mail marketing?

Well, for the one that there's been two, I think, that have hit recently. Just in general your new direct mail campaign?

We could go to Ken, also, I believe for that.

You know, obviously, it's still redeeming. We don't have kind of a full response rate on it yet. But it is certainly in line with historical response rates and is maybe slightly ahead of plan.

Thanks, Ken. Two more questions?

Tracie Pack of Prudential Equity Group. You may ask your question.

Thanks. Also for Ken and Neil. Just going back to the relaunch in spring, can you talk about--is there going to be any delay in how long you allow to introduce a new product, ie allow longer selling time between introductions? Does that involve any third party locations? And then on the candle, do you intend to expand the number of scents, and do you intend to put it into new stores and if so, when?

We will go out to Neil and Ken. Stacey, we are not going to get into next year much at this point. We will do that on the fourth quarter call. But I want to get a preliminary answer at least from Neil and Ken.

I think that there's maybe a broad answer here which applies to a lot of our launches, and that is that we are at the beginning of getting good at launches and figuring out what the right launch model is for our business. It is not like where Victoria's Secret was three or four or five-years when they first started the major bra launches. In the first couple there is a lot of learning, figure out what adjustments you need to make. Again, I think we are just at the beginning of that.

So how much we support it, the duration of the launch, the cadence, what we come in behind it with, how we sustain it in a nonlaunch period. Those are all questions that we are working on and we will continue to get better on just as Victoria's Secret did as we try to escalate our launches and get better at them.

With respect to the White Barn New York candle, humbly called the best candle in the world--we are very pleased with the results of that product line. Its appeal to our most sophisticated customers. As most of you know it is also in Henri Bendel and is doing fantastically well there. So based on that success, we would certainly be looking to expand its impact throughout our chain and the number of fragrances.

Thank you, and operator last question.

Our final question comes from Todd Slater of Lazard.

Thanks, and good morning. I have a multi-pronged question about conversion rates. You recently rolled out what looks to be a very proprietary, very robust operations system and I think at its heart its goal is improving conversion rates among other things. I wonder if you could talk about any new improvements at Victoria's Secret where it is almost fully rolled out, your improvements in conversion rates and what a 1% increase, you know if you can get a 1% increase in conversion, how much that would translates into comps and do you expect conversion to be up in Victoria's Secret in the fourth quarter and just, when does the system get fully rolled out at the other brands? Thanks.

All right. Todd. Thanks, we will go to Ann for that last question her. Thank you.

We did roll out a new integrated brand delivery product POS system. It is fully rolled out at Victoria's Secret. It is hard to say how much we are improving or not, given that we don't have any historical information on conversion rates. What we have been able to do is, you know, get some anecdotal information from competitors and it looks like for Victoria's Secret, we are already in the ballpark of, you know, an average conversion rate. So as we start to lap that, we will be able to set goals for ourselves in terms of improving in conversion rate, but it is clearly one of our key metrics and the reason that we put traffic counters and part of the reason we put the new system into the stores.

Thanks, Ann. That concludes our call. I want to thank our participants and our listeners and we hope every one has a good day. Thanks.