Bath & Body Works Inc (BBWI) 2005 Q3 法說會逐字稿

Good morning and welcome to the Limited Brands Incorporated third quarter earnings release conference call.

At this time, all participants are in a listen-only mode. During the question-and-answer session, please press star one on your touch-tone phone to ask a question.

Today's conference is being recorded. If at any time you have any objections, you may disconnect at this time.

Now we'll turn the meeting over to Mr. Tom Katzenmeyer, Senior Vice President of Investor, Media and Community Relations.

Thank you, good morning. Welcome to the Limited Brands third quarter earnings conference call for the period ending Saturday, October 29, 2005.

As a matter of formality, I need to remind you that any forward-looking statements we may make today are subject to our Safe Harbor statements and in our SEC filings. Our third quarter earnings release and related financial information are available on our Web site, limitedbrands.com.

This call is being taped and can be replayed by dialing 1-800-337-6551 followed by the passcode 583. You can also listen to an audio replay from our Web site.

Len Schlesinger and Ann Hailey are with me this morning, as is Grace Nichols and Mark Weikel from Victoria's Secret stores, Neil Fiske and Tom Fitzgerald from Bath & Body Works, Ken Stevens and Paul Raffin from Express, and also Amy Preston. It's good to be with you on this 25-degree Columbus morning.

After our prepared comments, we will be available to take your questions for as long as time permits. So that we can speak with as many callers as possible it, is important that you limit yourself to one question.

All results that we will discuss on this call are adjusted results. We believe that the adjusted information helps in understanding our financial results. A reconciliation of GAAP to adjusted results is included in the press release and is also available from our Web site.

I'll turn the call over now to Len Schlesinger.

Thanks, Tom. Good morning, everyone.

Our third quarter loss of $0.03 per share was slightly below our initial expectations. [Inaudible] across all of our brands was soft in the third quarter and the external environment remains challenging.

Although we're cautious about the customer's mindset and competitive activity during the holiday season, we've prepared for and are committed to executing the best possible holiday that we can.

Many of you heard about our plans for the holiday at our investor meeting last week. If you weren't able to attend, I encourage you to view the archived Webcast that's available at limitedbrands.com.

Additionally, Grace, Neil and Ken will be speaking specifically about holiday in a few minutes during their remarks.

I'd like to talk briefly about our strategic initiatives and then I'm going to turn the conversation over to Ann who will discuss our third quarter results and our fourth quarter outlook. First, within the lingerie group, we continue to be enormously pleased with the performance of PINK.

As you know, we're building on its success by testing an expanded assortment in 43 stores. This includes an expanded accessory and apparel assortment and we're pleased with all of the initial results there.

We'll develop the expansion plans for PINK, including the possibility of freestanding PINK stores next year after reading the results of the expanding assortment offering at holiday.

As you know, we've been testing Intimissimi boutiques in a handful of Victoria's Secret stores. Intimissimi is a premier Italian lingerie brand which adds a fast-turning fashion element to our stores.

Based on the success of those initial tests, we're expanding the number of Intimissimi boutiques in Victoria's Secret stores. We plan to have 26 Intimissimi boutiques by the end of this year and 160 by the end of 2006.

Many of you who visited us in Columbus last week saw the freestanding Intimissimi store as well that we're testing at Easton and we look forward to reading the results from that investment as well.

Victoria's Secret Beauty is in the initial stages of developing its new beauty line with Intimissimi. And this combination of fine fragrances, color and personal care products will be launched in Victoria's Secret and Intimissimi locations next year.

We've now opened seven stores in the new Las Vegas Forum format for Victoria's Secret and we're very pleased with the results of these stores. We'll continue to evaluate them through the holiday season.

In the personal care group, e-commerce on bathandbodyworks.com launched on October 11th. The initial response has been encouraging.

Traffic has been consistent since the site opened and the top sellers reflect our emphasis on seasonal items and gifting. We plan to continue to broaden and extend the assortment of products available online further this spring.

We opened up six new Bigelow stores last month in Boston, Chicago and New York markets. The performance of these six stores will indicate all potential for greater distinction among multiple store formats and expansion opportunities for Bigelow, in particular.

In October, we also announced the creation of a new business, Beauty Avenues. Beauty Avenues, which will be led by Meade Rudasill supports our personal care and beauty businesses by providing industry-leading innovation and commercialization capabilities.

The organization has been formed by combining several existing product development and manufacturing groups at Bath & Body Works and Victoria's Secret Beauty.

Thanks, and now I'd like to turn the discussion over to Ann.

Thank you, Len. Good morning, everyone.

For the third quarter, our comps declined 3% and total sales were flat. Gross margins declined 160 basis points to 30.7%, primarily driven by a decline in merchandise margins.

Buying and occupancy costs delevered slightly on our negative comps.

Total SG&A dollar spending increased by 3.5%. Incremental spending was driven by investments in new growth concepts and in infrastructure to support future growth.

On negative comps, our SG&A spending delevered by 100 basis points. Third quarter operating income declined by $50.5 million.

By segment, the results were Victoria's Secret operating income decreased by $700,000, Bath & Body Works decreased by 22.1 million, apparel results declined by 18.6 million and the other segment loss increased by 10.5 million.

We lost $0.03 per share in the quarter versus earning $0.10 per share last year. Last year's results included a $0.03 per share gain related to a favorable tax settlement.

Direct costs related to the hurricanes were about a penny per share in the third quarter. The majority of these costs are associate-related, including gift cards, payroll and bonuses provided to effected associates.

This amount does not include the impact of lost sales due to store closings or higher fuel costs.

Inventories ended the quarter up 2% per square foot at cost. Apparel inventories ended the quarter down 7% per square foot at cost.

During the quarter, we completed $33 million worth of our $100 million share repurchase program. Our year-to-date share repurchase total is 233 million, buying back 10.4 million shares.

Our Board of Directors has authorized a $200 million share repurchase program which incorporates the 67 million remaining under the previous program.

Turning to our guidance for the fourth quarter, we are comfortable with the current First Call consensus estimate of $1 per share. This compares to last year's result of $0.87 per share and that number includes the $0.09 lease accounting adjustment charge.

These fourth quarter expectations are based on the following set of assumptions. Please note that the comparisons are to 2004 excluding the lease charge.

First, we expect low single-digit comps and a mid single-digit increase in total sales. So far in November, our comp results are consistent with the slightly positive guidance that we gave on the October sales call two weeks ago.

Second, we expect a decline in the gross margin rate. Third, SG&A expense is increasing on a dollar basis and slightly as a percentage of sales.

A little more than a third of the increase is driven by increased marketing at Victoria's Secret and Express. The balance is split roughly equally between an increase in store selling costs and investments in projects that support growth.

We now estimate that 2005 capital expenditures will be about $500 million versus our previous projection of 515 to 575 million.

Now, before I turn the discussion over to Grace, I want to make a few comments about Victoria's Secret Direct and about Limited stores.

Victoria's Secret Direct sales increased 2% in the third quarter and operating income was down to last year. Performance was somewhat below our expectations, driven by softness in the clothing category. Bras, sleepwear and beauty achieved strong growth over last year.

For the fourth quarter, Victoria's Secret Direct is planning compelling opening price points and supporting its business with a significant increase in the number of customer contacts, including e-mail and banner ads.

Turning to Limited stores, their third quarter comps increased 2% and the operating loss increased slightly.

Looking to the fourth quarter, Limited stores will continue to focus on best at pants to drive sales, along with sexy tops to balance the assortment. This year's fourth quarter will also have an increased focus on self-purchase.

I'll now turn it over to our brand leaders to discuss their results beginning with Grace and Victoria's Secret stores.

Good morning, everyone, and thanks, Ann.

I'm calling in from Manhattan, so I'm disconnected from my partners in Columbus. So we'll do the best we can in guiding you through this.

For the third quarter, Victoria's Secret stores comps declined 4% against a 13% increase last year. Total sales were flat and operating income was up to last year.

At stores, PINK results were solid. Panties and sleepwear performed in line with our modest expectations, and bra comps were negative, driven by a disappointing Angels fashion focus in September against a highly successful launch in Angels bra launch in September.

Additionally, we shifted media and direct marketing into the fourth quarter. In hindsight, this hurt our third quarter performance.

Beauty had a strong launch of the new spa product in the third quarter, but total beauty sales in the quarter were down to last year, driven by a decline in Prestige fragrance. Looking ahead to the fourth quarter, our first holiday floor set began mid October with the focus on PINK, including the PINK dog gift with purchase and this has been well received.

Last week we launched the new Victoria's Secret smooth push-up without padding.

Late November, the floor set will shift to an emphasis on gifting, a category that is doing well for us. We believe that we're well positioned for holiday. In fact, we've increased our holiday support with an increased [inaudible] plan, including new television media and gift with purchase offers.

We're also excited about the return of the fashion show this year, which will air on CBS on December 6th and provides momentum to the holiday season by showcasing our lingerie and gifting themes.

Thanks, and now I'll turn things over to Neil.

Thank you, Grace, and good morning, everyone.

Bath & Body Works comps increased 1% in the third quarter against a 9% increase last year. It was our tenth consecutive quarter of positive comps.

Operating income decreased by 22.1 million to last year, primarily driven by four factors. First, we invested in brand building activities to support our new products, our new store formats, and our new channels, accounting for roughly one third of the operating income decline.

Second, timing of direct mail and marketing investments drove roughly one third of the unfavorable impact relative to last year. The third biggest variance to last year was driven by a set of one-time costs within the quarter, primarily related to the execution of our holiday floor set.

Finally, our product margin was down year-on-year, due to a product mix shift in clearance of seasonal goods in advance of holiday. This was a minor part of the swing in operating margins, and we are better positioned going into the fourth quarter as a result of taking our markdowns earlier.

Consistent with last year, our profit plan for the fall season is heavily weighted to the fourth quarter. Specifically, we believe we are well positioned for holiday with a strong assortment and our evolution to a focus on gifting rather than just gift sets.

We began holiday in mid October with an emphasis on self-purchase and preparation for the perfect Christmas, featuring our perfect Christmas home fragrance collection, seasonal toiletries and gifts. The current theme showcases our Gourmand assortment at the front of the shop, including Tutti Dolci, Jaqua, new seasonal products and fragrant body care and edible treats.

We have broadened the assortment this year beyond the beauty and personal care categories that add emotional items that connect with our customers.

In the last two weeks prior to Christmas, we'll emphasize the more traditional forms of gifting. This year, we have broadened the layers of gifting to include create your own gifts, packaged giftables, such as hard candy, teddy bears, hot chocolate and three compelling purchase with purchase offerings.

Post holiday, we will start our January clearance sale on December 26th. This year, we have redesigned the sale to make it more of a destination event for our customers with a refreshed look to the store.

Customers will be encouraged to try new products at the customer trial table, as well as benefit from the great deals that we're adding to the shop.

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

Thanks, Neil. Good morning, everyone.

Express' third quarter results were below our expectations. Comps were down 6% and our operating loss increased significantly compared to last year.

The third quarter began with the relaunch of denim as a key component in our back-to-school strategy versus '04's focus on where to work merchandise. Our August floor set for back-to-school focused on merchandise that is more casual, younger and sexier with an increased presence in denim and knit tops.

Both merchandise categories performed favorably to last year. Denim, however, underperformed its inventory position.

In women's, growth in knit tops and denim were offset by unfavorable performance in several categories, including two major wear-to-work categories, woven pants and woven tops. In men's, growth in denim, knit tops and jackets was more than offset by declines in pants, sweaters and woven tops.

Our holiday strategy focuses on winning the customer back through creating a casual, young, sexy sensibility and giving customers the product they want at appropriate price points. We have a much greater selection of items at lower opening price points to stimulate more gift purchases during the holiday, while also providing our customers with more opportunities for self-purchase.

As we've previously said, we are cautiously optimistic about an improvement in the sales trend we have seen since setting the first holiday assortment in mid October. From a marketing standpoint, we are taking steps to increase traffic and conversion with promotions focused on our best customers and direct mail offerings.

Thanks, and now I'll turn the discussion back over to Tom.

Thanks, Ken.

Just a quick correction before we proceed and that is that the Victoria's Secret operating income increased by 700,000 in the third quarter. So an increase in Victoria's Secret segment.

That concludes our prepared comments. At this time, we'd be happy to take your questions. Again, we will remind everyone our goal is to get to as many questions as possible. So with that, Operator, we're ready for the first question.

Thank you. [OPERATOR INSTRUCTIONS]

Our first question comes from Stacy Pak. You may ask your question and please state your company name.

Thanks.

Let's see, so I guess for Neil, can you comment on the performance of the holiday floor set now since it's been in place since the 17th? Are you seeing Christmas start to pick up or is it starting late?

And can you explain a little bit more, how much of the decline in, because I think the operating margin was down over 600 basis points, how much of it was due to the mix and seasonal clearance and also, what is a realistic expectation for that business for Q4 relative to last year?

Okay. I'll take the holiday question and Tom will take the margin question.

So far, we're quite encouraged by the pattern of selling that we're seeing in the holiday business, and consistent with the direction that we gave at the investor meeting, are somewhere between cautious and cautiously optimistic in our outlook for the holiday selling period. We know that we have strength in a number of our programs, including our purchase with purchase programs, our home fragrance collection, and our gift sets, which are obviously all big parts of the holiday assortment.

And our view is that holiday traffic will continue to pick up and that the fundamentals of our assortment are on track to deliver the performance we need.

Stacy, to your question on operating margin, less than 10% of the decline year-on-year was due to the clearance of seasonal goods and its effect on operating margin. And as you know, we can't really comment on Q4 guidance.

Thanks, Stacy. Next question, please?

Thank you. Margaret Mager, you may ask your question and please state your company name.

Hi. With regard to the same store sales plan, you said that so far in November you're tracking to what? I wasn't really clear about that. Low single digit for the quarter, but what's going on with November and does anything have to happen of significance in the next two weeks for that to meet your expectations?

Margaret, this is Ann. Let me be a little, try to be a little more clear about.

The guidance for the November comps, which we provided on the October sales call, was for slightly positive comps for the month of November, and our results so far are consistent with delivering that. It is worth noting that less than half of the month is behind us in terms of sales volumes so we have a very important selling period ahead of us for the remainder of November.

Thanks, Ann. Next question, please?

Thank you. Teresa Donahue, you may ask your question, and please state your company name.

Good morning, everyone. Neuberger Berman.

I had a quick question on the fourth quarter outlook and did you say the gross margin would be down, and if so, why, given, I guess Express was the big driver of the huge drop last year. I'm wondering where you think that's coming from.

I did say that we were expecting a gross margin decrease in the fourth quarter, not a material one but certainly we are anticipating a decrease. It would be not driven in particular by any one of brand or segment, but it's a merchandise margin decline in all segments and it reflects our outlook for a highly competitive, highly promotional holiday period this year.

Thank you.

Thanks, Teresa. Next question, please?

Dana Cohen, you may ask your question and please state your company name.

Hi, guys.

Getting back to Neil, can you give us a sense of how much of the variance versus last year was planned? Because I think the relevant issue is with the lack of guidance by quarter, by division, I think the loss was unexpected, so how much of this was planned and how much of this was over the course of the quarter?

And then second, Ann, you talked at the conference about 30 million of SG&A taken out. If I do the math of your guidance at the end of Q2, it looks like SG&A came in basically where you guided to in terms of dollars. So I'm wondering where the, was there an offset in the quarter?

Dana, thank you. We'll go to Neil first and then go to Ann for the SG&A question.

So, Dana, on the question of how much was planned versus unplanned, we planned going into the third quarter to be investing considerably more in brand building and in opening new formats and the launch of e-commerce, and so the majority of the variance to last year, we would say, was planned as a result of the investments we made in the business. Obviously there was some softness on the top line that was below our expectations.

The product margin mix miss was relatively small in the scheme of things, and then we had some timing and one-time factors that made the balance of the mix. And Tom, I don't know if [inaudible].

Just to talk to that for a second, Dana, the timing of the expenses that Neil talked about, about a third of our decline was really due to direct mail and marketing, and it's a flip between Q3 and Q4. So in the aggregate, where we thought they would be for the season, but just really a timing shift.

Sort of the third largest contributor after brand building and the timing issue were the one-time expenses we incurred that we didn't anticipate. Primarily underneath that were the costs related to our holiday floor set, where we had some unanticipated logistics costs, which we did not incur last year and do not expect to incur next year.

Ann talked about the hurricane losses are tucked underneath that. Also, the spike in fuel costs to move the inventory.

So like 50/50 with planned and unplanned?

Between the timing and the one-time?

Yes, I'm just trying to get a sense of how much of it, was it 50/50 in terms of planned declines versus [inaudible]?

I think a little more like 60/40.

Okay, great.

We'll go to Ann for your SG&A question.

Dana, I believe the guidance that we gave on the third quarter was for an SG&A rate that was about flat to up slightly. And in fact, our dollar spending on SG&A was about $15 million better than we anticipated at the time.

What happened to the rate is that our guidance on the third quarter was also to be roughly flat on comps and as you know, we ended up below that. So on the softer sales number, we were unable to be flat on the rate because of, despite the fact that we took out the overhead.

Thanks, Ann. We're ready for the next question.

Thank you. Todd Slater, you may ask your question, and please state your company name.

Hi, this is Chris for Todd Slater at Lazard. Thanks, and good morning.

Could you provide some color on Express and with your 1Q, or excuse me, with your $1, 4Q forecast, what does this assume in operating earnings either specifically or directionally relative to last year for Express and the apparel businesses? And we would appreciate if you could be as specific as possible. Thanks.

Chris, hi, this is Amy. Unfortunately it is our policy not to give fourth quarter guidance by segment.

Next question, please?

Our next question is from Mark Friedman. You may ask your question, and please state your company name.

Merrill Lynch. Good morning, guys.

Neil, I was wondering if you could talk a little bit more about this direct mail shift, just understanding what the strategies are related to the fourth quarter? And then if you could just comment, any plans at this stage to put any BBW flagships with Bigelows excluding the one that's at Easton?

Mark, could you clarify the second part of your question?

I was just wondering if there are any plans in '06 to test Bath & Body Works flagship stores with Bigelow stores in the same location?

Okay. Let me [inaudible] high level direct mail question. Roughly speaking our goal this year is to anniversary the amount of business that we did through direct mail last year at holiday and obviously the timing of that is a little different this year than last year but net-net should be about the same. And obviously as Tom said, [inaudible] the costs of that in the third quarter than the fourth quarter.

Then on the question of BBW flagships and Bigelow in the same mall, I think that's an open question. That's very much in the learning stages of the Bigelow concept.

We're quite certain that Bigelow and a BBW core store can exist in the same mall and be incremental, and we are testing in a couple locations, Woodfield and here in Columbus, a flagship and a Bigelow in the same mall. Obviously we're going to watch and learn from it and roll out fairly cautiously based on that learning experience.

Thanks, Neil. Next question?

Thank you. Jeff Black, you may ask your question, and please state your company name.

Yes. Lehman Brothers. Good morning.

I wondered if we could take the apparel margin question from a different perspective. It sounded like you really saw in some traction in the back half of October and we were wondering if you could give us some sense of how much better on the operating margin side apparel might have been trending in that back half of the quarter as opposed to the first half of the quarter, and whether that margin improvement would have been due primarily to lower inventories or are we really starting to see some better traction on traffic there? Thank you very much.

Ken and Ann, would you like to both like to make a comment on that? We'll start with Ken Stevens first, Jeff.

Sure. We won't give specific numbers on that, but just to give you a sense, as we mentioned last week in all of our major categories, our retail prices are down in the neighborhood of where they are much more attractive to our core customer base.

We also mentioned that we are driving greater levels of transaction through the combination of an improved assortment to better pricing, and direct mail marketing that we're doing. So we feel comfortable with the traction that we've gotten so far.

And, Ann, would you like to add an observation?

I would.

Thank you.

I think what we saw in the third quarter in the apparel segment was clearly a significant improvement, kind of we bottomed in the first and second quarters and we had a materially better result in the third quarter, although not where we would want it to be. So clearly we are hopeful that the trend in improvement will continue.

Thanks, Ann. Next question, please?

Dana Telsey, you may ask your question, and please state your company name.

Good morning. Bear Stearns.

Post holiday, what is the focus of the businesses for the first half of the year, the first quarter and product and marketing and how is it different than last year? How are you planning? Thank you.

Thanks, Dana. We'll pass that question around. Why don't we go to [inaudible]?

At Bath & Body Works the outlook for spring will be really focused on continuing to build our fragrance portfolio in [Breeze] and daily beauty rituals with the introduction of a couple new fragrances which we are quite optimistic about.

And secondly, the big emphasis for spring will be the rollout and building of the Patricia Wexler, M.D. skin care line which is really off to a terrific start. And so spring we'll see that rollout to four stores and a marketing program behind that.

And Dana, we'll go to Mark Weikel for the Victoria's answer.

Grace, if you want to add thing on, just jump in. I think the key thing for us in spring and first quarter is continuing our focus on powerful bra launches, also continuing to take advantage of the power of our existing four core sub brands. That would also include the full exploration of PINK. So we're very encouraged by the PINK solution set work that's occurred to date and we will continue to do that work.

We also are focused on improving our panty assortment in dressy panties versus where we were in 2005. We're also very excited about continuing our exploration in Intimissimi as we continue to expand that to the additional stores that Len mentioned in the opening comments.

We're also looking forward to continuing to unlock our sleepwear exploration to understand a younger, more loungewear-inspired interpretation of that for spring and summer. And in Valentine's Day, we'll continue to focus on things like PINK and PINK Gs and as well as continuing to define ourselves as a gifting destination.

Grace, is there anything you would add to that?

I think Mark did a great job of covering most of the strategic energy. I'd just add in the third quarter our bra lunch cadence is the same as last year on a month-to-month basis, and in the second quarter we're anticipating an exciting Mother's Day as well as the introduction of our new sport bra collection in the second quarter.

Great. Thank you, Grace. And we'll move to Paul Raffin, Dana, for the Express.

Hey, Dana.

As you recall, [inaudible] saw the Express brand continue to suffer greatly as a result of the strategy that emphasized wear-to-work. We are relentless in our focus to get our balance back on the basis of some customer insights that we are equipped with now.

We know that our customer approaches our brand for three wearing occasions, so you will see going into spring wear-to-work coupled with jeanswear casual dressing, as well as special occasion products to really engage our customer across all of the wearing occasions.

As Ken mentioned earlier, a relentless focus also on accessible price points, much faster turns in our inventory and newness factor that we will continue to introduce to our customers, which we anticipate will improve our fashion hit ratio, much more aggressive marketing programs to both communicate the change at the brand as well as drive traffic and conversion. And we have a number of exciting product launches planned for spring that we think are going to be important to our business.

Great question. Operator, I think we have time for a couple more questions.

Thank you. Richard Jaffe, you may ask your question, and please state your company name.

Thank you very much. It's Richard Jaffe of Legg Mason.

Could you guys talk about the magnitude of the marketing effort at both Express and Bath & Body Works and compare it to last year by channel, direct mail, TV and print?

Why don't we do Bath & Body Works first?

So for the store part of Bath & Body Works, the amount of marketing activity that we have for the fourth quarter is largely the same in that we expected to drive from a revenue perspective. It's up slightly in it's cost as we moved up the production values and did things like a holiday magalogue this year versus just a simple direct mail piece, so the costs are up a little bit, but the revenue generation associated with that, we expect to be flat to up slightly.

For the direct channel, we are going slow to go fast on that, making investments as we go based on the size of the business and we have a marketing plan that we can scale up or scale down, depending on the traction that we get in that channel. And as you know, a lot of that kind of marketing is on the Web and so we can adjust to that pretty quickly. So that one, I think, is more a, more in-process and will react to the market on it.

And, Richard, we'll go to Ken Stevens for the Express part of the question.

Hi, Richard.

As we talked about last week, we will have approximately 20 million touches of our customers through various marketing activities in the fourth quarter that include category and product-specific bounce backs, best customer events which focus on a top segment of our customer base, very specific hourly presentations on Black Friday and some other events that we really don't want to talk about publicly that overall result in an almost 300% increase in marketing activity year-over-year.

That would include direct mail and then any brand building in terms of TV or print for Express, or more generic [inaudible]?

Virtually everything that we're doing is brand building at this point.

Of course, but I meant not promotionally specific as some of the direct pieces sound like.

Yes.

No TV.

Okay.

Thanks, Richard.

Thank you.

Next question?

Thank you. Kimberly Greenberger, you may ask your question, and please state your company name.

Great, thank you. Citigroup. My question is for Grace.

Grace, I was wondering, it seems like if I could read into your strategy on the panty business and read into your strategy on the sleepwear business, that you have been gradually trying to migrate the Victoria's Secret business younger and younger, getting rid of, for example, some of your full coverage bottoms or some of the sleepwear that appealed to the older customer, and I'm wondering if this represents a shift in strategy or a refinement in strategy?

It seems to me that Victoria's Secret has always been positioned as young brand that sort of had a broader halo. But it feels like you're actually taking it more to be sort of an exclusively young brand with a less broad halo. Can you comment on that?

Well, I wouldn't say that there is a shift in our strategy. We are, we're very focused on a target 28-year-old customer and we think that that market position has broad appeal to women 20 to ageless, really, as long as their emotional vent is consistent with the aspiration of our brand. So what I would say is we're very interested in women who appreciate fashion and quality of all ages.

We think that the success of PINK demonstrates the ability to intensify the fashion content of our assortment and that, what that will do for us is lead to an increase in frequency of visitation to the store and frequency of purchase so that we're less reliant over the long-run on basics only. So I just see it as beg an added dimension and the evidence of PINK and Intimissimi is, I guess, what gives me confidence that this is an important strategy.

Thanks, Grace. Next question, please?

Thank you. Lauren Levitan, you may ask your question, and please state your company name.

Thanks. Good morning, Cowen.

I'm wondering if Grace and Neil and Ken could comment on plans for capturing business in three peak time periods or ways this holiday season with respect to marketing events and floor set changes and timing of any inventory changes, and those time periods that I'm curious about would be what you're planning to do for Black Friday, what you're planning to do for the week after Christmas for that selling period, and then what you're doing to drive self-purchase, which I know you've all commented on as being a significant portion of your plans for Q4? Thanks very much.

Lauren, thanks. We'll go around the table on this question. We'll start with Ken Stevens for Express.

Good morning, Lauren.

We have done a very thorough literally hour-by-hour analysis of last year's Black Friday and prior year's Black Fridays, and basically know what we need to do on an hourly basis and are planning accordingly, given the highly intensive competitive nature of that day. Beyond that, we really don't want to say anything else. But just know that we expect to do very well on that day.

After Christmas, we will move into a winter sale, which is an intermediate step of clearance that should not result in the volcanic-like prices that you would see in our season-ending sales.

And then in terms of self-purchase, what's interesting I think to us, is that our self-purchase business has always been there. We tried not to have it be there last year, which was clearly a mistake and so this year, we're able to basically take what is the natural flow, at least of our customer base, and how they want to be purchasing right now, and go with it and are seeing good results from doing, from that.

We'll go to Lauren to Mark Weikel for your [inaudible] question on Victoria's.

Good morning, Lauren.

The first piece I would like to cover from a marketing stand is television where we've increased the November and December spend by greater than 50% versus last year. Most of this spend is behind new initiatives, things like gift cards, gifting, beauty and also our fashion show support. So we're very excited about that.

Also in our customer relationship marketing, we've increased our circulation in November-December and have enhanced our CRM offering in that same time period.

In stores, if you looked at us from a visual perspective, you'd see new brand packaging this year versus last year, which we're very pleased with, also very excited. We've got six great unique gift card designs this year versus last year, some new impulse fixtures and also excited about our gifting presentation, allowing our customers to create their own gifts this year.

We also have an exclusive offer the day after Thanksgiving, which we're excited about. And also have a two-disc holiday CD that we're hoping will be a great gift-giving item this year.

And the other piece I'd mention would be that we believe we have a much stronger mega brand presence this year. Santa Girl is iconic across Victoria's Secret, we're very pleased with that. And also about our "Give Me Sexy" theme across Victoria's Secret.

Last piece I'd mention is really kind of a fun thing. For $5 our customers can create their own gift with a bear in a box if they purchase any level of gift cards. So that's really our marketing plan for November and December.

December week five, we're really still formulating. What we're going to do in December week five, but we will follow that with a semi-annual sale in early January.

Lauren, we'll go to Neil for the last part of your question.

So, Lauren, on Black Friday, we will be slightly more aggressive this year than we were last year, and our big emphasis will be on throughput. And as you know from being in our stores, the biggest issue we have is how many people can we process on that morning, not so much how many people can we attract into the store.

So our view is if we can get throughput cranked up, that should drive incremental sales on Black Friday. Nevertheless, we'll be slightly more aggressive in the promotions that morning than we were last year, but not in a dramatic way.

Post Thanksgiving, really the big emphasis will be on broadening the gifting layers that we've got for our customers, and in the last two weeks of holiday, making purchasing gifts easier than ever with a new program of instant gifts, an expanded create your own gift program and gifts to go.

And then thirdly, on the self-purchase question, our biggest issue this year is really making the whole collection fun and irresistible. And if it's fun and irresistible for her, it will also be a great gift. So that's why we've added some of the layers of emotion and whimsy into the assortment to get her engaged and treat herself as she treats other.

Great. Thanks, Neil and Mark and Ken. Operator, I think that exhausts all the questions. I just want to close with two comments.

One is we appreciate the strong turnout at the analyst event last week here in Columbus, and secondly, we wish everyone a happy Thanksgiving weekend. Thank you.

Thank you. This concludes today's conference call. Thank you for your participation. You may disconnect at this time.