Bath & Body Works Inc (BBWI) 2014 Q1 法說會逐字稿

Good morning. My name is Laurie, and I will be your conference operator today. At this time, I would like to welcome everyone to the L Brands first quarter 2014 earnings call. All lines have been placed on mute to prevent any background noise. I will now turn the call over to Ms. Amie Preston, Chief Investor Relations Officer for L Brands. Please go ahead.

Thank you, and good morning, everyone. And welcome to L Brands' first-quarter earnings conference call for the period ending Saturday, May 3, 2014.

As a matter of formality, I need to remind you that any forward-looking statements we may make today are subject to our Safe Harbor statements found in our SEC filings. Our first-quarter Earnings Release and related financial information are available on our website, LB.com. Also available on our website is an investor presentation, which we will be referring to during this call.

This call is being taped, and can be replayed by dialing 1-866-newsLTD. You can also listen to an audio replay from our website.

Stuart Burgdoerfer, EVP and CFO; Sharon Turney, CEO, Victoria's Secret; Nick Coe, CEO, Bath & Body Works; and Martin Waters, President of International are all joining us today. After our prepared remarks, we will be available to take your questions for as long as time permits. We need to end the call today at 10 AM to get to a Board meeting, so I'm going to remind everybody to please limit yourself to one question. Thanks, and I'll turn the call over to Stuart.

Thanks, Amie, and good morning, everyone. Our first-quarter results were good in what was a challenging retail environment. Total sales increased 5%, comps increased 2% on top of a 3% increase last year, and operating income dollars increased 8%, and EPS grew 10%. Importantly, we delivered 5% sales growth while holding merchandise margins relatively flat. We effectively managed promotions in the quarter and reduced inventories, ending the quarter at up 6% per square foot, down from 9% at the beginning of the quarter.

The gross margin rate declined by 40 basis points to 41.1%, driven roughly equally by a slight decline in the merchandise margin rate, and buying and occupancy deleverage. The slight decline in the merchandise margin rate was in line with our expectations.

SG&A expenses were well managed, increasing by 2.5% in total, and leveraging by 80 basis points. The operating income dollar increase of 8% was driven by growth in all three of our major business segments, and our operating income rate improved by 40 basis points. Earnings per share increased 10% to a record $0.53.

Turning to the balance sheet on page 6. Retail inventories per square foot at cost ended the quarter up 6% versus last year. We're very comfortable with our inventory positions. They are clean and in good shape.

We repurchased 781,000 shares of stock in the first quarter, for $42.1 million. At quarter end, we had $133.6 million remaining under our current $250 million repurchase program. Turning to page 8 of the presentation.

Our forecast for 2014 reflects actions we are taking to grow our business. Growth in Victoria's Secret real estate, increased store selling payroll, driven by our efforts to improve the customer experience, and investment in International expansion. These actions will drive sales growth, but will result in near-term expense pressure, particularly in buying and occupancy and store selling cost.

Occupancy costs are estimated to increase by approximately 7% this year. This increase is driven by: increased rent for incremental square footage for new and remodeled stores in the United States, Canada, and the UK; increased accelerated depreciation for stores that we are remodeling before the end of the lease term; and increased depreciation related to the new and remodeled stores that were opened over the last several years.

Also in order to increase our focus on our faster growing, more profitable product lines, we are exiting certain non-core apparel categories in Victoria's Secret direct, and makeup in our beauty business. Sharon will discuss the strategic intent of these actions in her comments.

We plan to sell through the remaining inventory of non-go-forward merchandise through the remainder of the year. We currently expect that total apparel sales will decline by about $130 million in 2014, a portion of which will be offset by growth in other categories. And makeup sales will decline by about $25 million.

Our updated earnings guidance includes an estimate of the negative impact of exiting these businesses of between $0.10 and $0.12 per share for the year. For the second quarter, we expect earnings per share of between $0.57 and $0.62, against last year's $0.61 result. Higher interest expense and a higher projected tax rate are negatively impacting the second quarter by about $0.02.

Our second-quarter earnings forecast reflects a low single-digit comp increase. We expect the second quarter gross margin rate to be down to last year, driven by a decline in the merchandise margin rate and occupancy expense pressures. We expect that merchandise margins will decline by more than the first quarter, as a result of the apparel and makeup exits.

We expect the second quarter SG&A rate to decrease versus last year, driven by our continued focus on expense management. We expect to end the second quarter with inventory per square foot roughly flat to last year. For the full year, we are projecting positive low single-digit comps.

Total sales growth will be about 2 points higher than comps, due to growth in square footage and our International business. We expect our full-year gross margin rate to be down slightly, and the SG&A rate to be about flat to last year. Nonoperating expenses for the year are projected to be about $315 million, consisting principally of interest expense.

Before any discrete items, our tax rate will be approximately 38%. We are forecasting weighted average shares of about $297 million in the second quarter and the full year. Assuming all of these inputs, we expect earnings per share for the full year 2014 to be between $3 and $3.15 per share.

Higher interest expense, shares outstanding, and tax rate are negatively impacting our full-year earnings by about $0.07. As mentioned earlier, the exit of non-core apparel and makeup is negatively impacting EPS by about $0.10 to $0.12. Excluding these factors, earnings per share growth implied by our guidance is from 4% to 9%.

We are projecting 2014 CapEx of about $750 million. As you know, about 70% of our CapEx budget is for real estate and stores; the remainder relates to investments in technology, logistics and facilities.

As detailed on page 9 of the presentation, Victoria's Secret's square footage in North America will increase by just over 5% this year, driven by expansions of existing VS stores and the opening of 32 new PINK stores and 20 new VS stores. Total Company square footage will increase by about 3.5%.

Turning to liquidity, we expect 2014 operating cash flow of $1.35 billion to $1.45 billion, and free cash flow of about $600 million to $700 million. We remain committed to returning excess cash to shareholders through a combination of share repurchases and dividends. Our free cash flow and cash position, along with additional availability under our revolving credit facility, result in very strong liquidity, which is more than sufficient to fund our working capital, capital expenditures, dividends, and any other foreseeable needs.

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

Thank you, Stuart, and good morning, everyone. Our first quarter results are detailed on page 11 of your presentation material.

The Victoria's Secret segment grew both sales and operating income versus last year. Total sales increased 4% to last year, and comparable store sales increased 2% on top of 3% last year, with operating income increasing $14 million, or 5%. Customers responded favorable to our assortment, particularly the newness in our bra category, with our first-quarter core bra launches and strong growth from our sport bra offerings.

Our panty and PINK apparel categories also had solid growth. In order to increase our focus on our fastest growing, most profitable businesses, we are exiting some of our non-core apparel categories in direct, as well as Victoria's Secret makeup. This will reduce our annual direct apparel business from roughly $485 million in sales in 2013, to between $200 million and $220 million in 2015, with this year being a transition year. The exit of our Victoria's Secret makeup business will impact our business by about $45 million on an annual basis.

This is an exciting, long-term opportunity for Victoria's Secret, as our omni-channel categories are our most profitable. Aligning offerings across the channels not only allows us to better focus on our core, but also provides a seamless customer experience. In the stores channel, first-quarter sales increased 5%, and comps were up 2%. Our growth in sales came from both lingerie and PINK, with strong growth in bras. We were excited about our launches, and continue to see solid performance in sport bras. We also saw strength in panties and PINK.

Beauty sales declined, primarily driven by less promotional activity in body care within the quarter. Our store channel merchandise rate increased during the quarter, with gains across lingerie, PINK and beauty. Operating income dollars and rate increased during the quarter, as higher merchandise margin and leverage in SG&A more than offset growth in buying and occupancy from our investments in real estate.

In the direct channel, first-quarter sales were flat to last year, as a high single-digit increase in lingerie, PINK and sport was offset by a high single-digit decline in apparel. The merchandise margin rate was down to last year, primarily due to the higher promotional activity in the apparel business. Expenses were about flat to last year, so the decline in merchandise margin resulted in a decline in operating income.

As we transition to the second quarter, we will continue to focus on newness, and are looking forward to our upcoming bra launches, which have tested well. We continue to be pleased with results of our real estate and other store investments that are improving the customer experience.

While select category exits and continued investments in real estate will put pressure on our results, we are confident in our core categories of bras, panties, fragrance and PINK. Our inventories are well positioned, and we remain focused on increasing our agility in order to optimize our business. Thanks, and now I'll turn the discussion over to Nick.

Thank you, Sharon, and good morning, everyone. At Bath & Body Works, we were able to grow sales and earnings versus our record performance last year. We were pleased with the results, and we remain committed and focused on the fundamentals we do well, and recognize that we must keep getting better to win. Comps increased 2% on top of 3% last year. The overall assortments and shop activity was able to drive sales growth in a highly promotional environment.

Customers responded to newness in both form and fragrance in our three key categories: our Signature Collection product line, the soap and sanitizer business, and our home fragrance assortment. All performed at or above the total Company comp during the quarter.

We were pleased with the results of our soap relaunch during the quarter, which featured new formulation and packaging. Improvements in our conversion rates, and growth in our average unit retails during the quarter, were partially offset by challenging traffic levels. Total sales for the 13-week quarter were $582 million, up 4%, or up $21 million to last year.

For the quarter, our operating income was $80 million, up 9% from last year. Operating income as a percentage of sales was 14% in the quarter, and was up 60 basis points to last year. Gross margin rate in the quarter was up to last year, driven by leverage in buying and occupancy. SG&A expenses also leveraged versus last year.

We finished the quarter with inventory levels up slightly to last year, and in line with expectations. We were pleased with the performance of BBW direct channel during the quarter. Total sales were up 18%, and operating income grew significantly versus last year.

Looking ahead to the second quarter, we will continue to introduce newness and innovation in both form and fragrance. We began the month on Mother's Day, and transitioned into our Perfect Summer theme, featuring new and seasonal fragrances across the three key categories. We're excited about our assortment, but we will continue to manage expense and inventory conservatively.

Our overall focus continues to be about building the brand, getting faster and better at understanding and satisfying our customer needs, while providing them with a world class in-store experience. In addition to focusing on products and fragrance launches, we will continue to test and read results of new product offerings and promotional strategies, while maintaining flexibility in our inventory to read -- to react quickly to our customers' preferences. With that, I'll turn the discussion over to Martin Waters.

Thanks, Nick, and good morning, everyone. As you know, beginning with this quarter, we are reporting the results of our Victoria's Secret and Bath & Body Works International businesses in a separate segment for the first time. My comments this morning will relate to that segment.

We made a lot of progress in the first quarter. Sales increased by 76% to $71 million, and operating income advanced to $15.5 million. The operating income rate increased to 21.9%.

You will recall that when talking about revenue in this segment, we're including a combination of some wholly-owned stores, where we report retail sales, but the larger component is revenue from our franchise businesses. The good news is that sales and operating income growth was achieved across all of our formats. At Victoria's Secret International, we continue to be pleased with performance of our full assortment stores. In the UK, our London flagship store on Bond Street goes from strength to strength, and we've recently begun construction to expand into the adjacent space.

We opened another two stores in the UK in the first quarter, bringing us to a total of six mall locations in addition to Bond Street. We'll be opening another four stores this year in the UK. Elsewhere in the world, we opened another two stores under our partnership with Alshaya, bringing the total to six. These stores continue to do very well, and we'll be opening another six to eight this year across the Middle East and Turkey.

Our Victoria's Secret beauty and accessories business continues to progress well, and we ended the quarter with 209 stores open, and are on schedule for about 300 by the end of 2014. We're also on track to open VSBA stores in China at the end of this year.

In Bath & Body Works International, we are now up to 59 stores outside of North America, all franchised. We continue to be very pleased with performance of this business, and will open another 15 to 25 stores this year. So that's an update on International. And with that, I'll say thank you, and turn it back over to Amie.

Thanks, Martin. At this time, we'd be happy to take your questions. As a reminder, this is a shorter call today, so please try to just ask one. Laurie, I'm going to turn it back over to you.

(Operator Instructions)

Your first question comes from the line of Matt McClintock of Barclays. Your line is open.

Good morning, everyone. Sharon, I was just wondering if you could talk a little bit more about Victoria's Secret sport. We've seen some very impressive presentations in some of your stores during our checks. And I just wanted to get more of your vision for future growth in that category this year, next year, going forward?

And then maybe, can you talk more about upcoming product launches, innovations, and compare that to the product that you had last year? Thank you very much.

Thank you, Matt. We're very excited about our sport business. And as you know, we rolled sport bras to all stores in the fall season, and it has continued to exceed our expectation. We only have our full assortment in about 80 stores right now, from a sport perspective. We think that this is huge opportunity, not only in the store channel, but as well as in the direct channel. We continue to incubate ideas in these full assortment stores, and continue to be pleased and really in exceeding our expectations.

The only thing that gets in our way of growth right now is just real estate. So as you see, all the real estate moves that we're making this year in terms of Victoria's Secret will allow us to continue to expand upon this category. I'm also pleased with the innovation that we're doing.

And in fact, in about another week, we'll be launching a new sport bra that we actually have the technology patent. And we call it the Knockout Bra, but it's also zip and click, which is just a great front closure sport bra with lots of technology to help support. And it has continued in the testing kit to really blow everything else out of the water, in terms of what we've done.

We have a full pipeline of innovation that we continue to see ideas much stronger than we did last year in the sport bra category. So we're well positioned. We're excited about it. I feel like that we're going a little slower than I would like, primarily just to the real estate that we need to continue to push this category forward.

That's great. Thanks, Sharon, and thanks, Matt. Next question, please.

Your next question comes from the line of John Kernan of Cowen. Your line is open.

Hello, good morning, guys. Thanks for taking my question. Stuart, I guess with inventory expected to be flat on a per square foot basis by the end of Q2, how conservatively do you think your gross margin guidance is in the back half of the year, as you start to lap some of the easier comparisons from last year? Thanks.

We're always going to work hard to hold or improve merchandise margin results in the business. Importantly, in the first quarter, we had -- I would describe it as solid results in merchandise margin rate, as compared to the fourth quarter. And we'll plan the business conservatively and work hard to do better than those conservative plans. We feel good about the inventory levels that we have now, and how we'll end the spring season.

So we've got conservative assumptions in the guidance, and we'll work hard to beat those assumptions. But we're feeling solid about the merchandise margin rate results in the business. And again, an important change in the first quarter versus the fourth quarter, where merchandise margin rates were, I think, pretty solid in a challenging environment. I think we're in good shape.

All right. Thanks.

Sure.

Thanks, John. Next question, please.

Your next question comes from Neely Tamminga of Piper Jaffray. Your line is open.

Great. Good morning. Can we just talk a little about the discontinued businesses? I guess one question here for Sharon: why specifically makeup? I think you guys went through a redesign on that one. I'm just wondering what the decision process was to exit out of makeup specifically.

And Stuart, in terms of, obviously, you guys are better aligning your talent out of the non-go-forward apparel. How are you guys thinking about saving, or rather re-spending some of those talent dollars? And where would you rather spend them on within your organization right now? Thanks.

Hi, Neely. In terms of discontinuing the makeup business, we didn't even have makeup in all stores, and it's really, when you think about from an enterprise perspective, our real core is going to be in fragrance. And whether it's our fine fragrance, whether it's in the body care business, and the makeup was more of an ancillary. It's a high maintenance business, a high discard business.

So when we think about focused, fast and frugal, and focusing on our core, going into fragrance and putting all the energies there, which is a better tie-in to lingerie, helps us to get to our end game faster. And we believe will help us to grow the whole beauty category even faster than we are today.

And I'm going to take the question about reinvesting the talents that we had. As we got out of the apparel business and the makeup business, we actually have refocused those talent -- that talent into our core. Whether it be in our sport category in direct, our swim category, beauty. We are under-developed in the beauty category in direct. So we have refocused, and you'll see some of that coming to play -- into play this fall season.

Thanks, Sharon. Thanks, Neely. Reminder, guys, one question, please. Next question.

Your next question comes from Brian Tunick of JPMorgan. Your line is open.

Great. Thanks very much. Wondering, on the Victoria's Secret direct changes you're making? Can you maybe give us some sense of what the margin delta might be on the swim and the sport, versus the apparel businesses you're getting out of? And what do you think the time frame is to replace that volume over the next couple of years?

Core shared product has much higher margin characteristics than the apparel business or the makeup business, because direct also did some makeup business. So the margin characteristics are much higher in our core shared categories.

As we think about really focusing on those core categories, we believe that we can offset the makeup business this fall season. We believe we can offset some of the exit this fall season. And then as we go into 2015, it will probably take us another 12 months to completely, on a conservative side, offset the exit of apparel.

Thanks, Sharon, and thanks, Brian. Next question, please.

Your next question is from Barbara Wyckoff of CLSA. Your line is open.

Hi, everybody. Sharon, could you talk about the new BB -- it was actually new at the beginning of May. The collection was all -- the performance of the collection was all of the multiple straps, it looked pretty terrific. Can you talk about that?

Sure. I think you're referring to the Very Sexy Strappy Back, and (multiple speakers) --

Exactly.

Yes. It did really, really well. The Strappy Back, what we also call caging from a fashion trend, continues to be strong, and it's something that we'll continue to maximize as we go forward.

Great. Thanks.

Thanks, Barbara. Next question.

Your next question is from Oliver Chen of Citigroup. Your line is open.

Hi. Thank you. Regarding the International side, for Martin and Stuart. As you think about capital allocation here, and the wholly owned store opportunity, what are the factors from which you would look at to even further accelerate that? And what catalyst or risk, or opportunity, points are you guys considering when you think about that versus domestic? Thank you.

Yes, so I'll take that first, Oliver. Thanks for the question. So we continue to be super-excited about the opportunity to develop the Victoria's business, both in full assortment stores and in VSBA stores. All of the VSBA stores are franchised, so there is no capital constraint there. The [rate] determining stats for how fast we go is just the availability of real estate and building a selling organization.

I think in the full assortment business, the UK, in addition to Canada, is the only market where we use our own capital. And our default position is to make this a low capital model. And where we can find franchise partners who are able to run the business in the way that we want them to run it, then that would be our first choice. And in the next couple of years, we've penned out a significant amount of growth with Alshaya in particular, across the Middle East and Turkey.

Thanks, Martin, and thanks, Oliver. Next question.

Your next question is from Kimberly Greenberger of Morgan Stanley. Your line is open.

Great. Thank you. My question is for Sharon. Sharon, you mentioned in your prepared remarks you're looking to deliver a seamless customer experience between online and in-stores, and that was some of the thinking behind the exit of these businesses. Can we assume that this is one step in a multi-step process to eventually roll out your e-commerce platform internationally? And if you have any update on the timing or the outlook of that, that would be really helpful. Thanks.

Kim, I think that is a great question. Yes, I think, by us making sure that we can focus on the few categories, it gives us the opportunity to excel, going forward into a bigger International business. It makes it a lot more simple, and it gives us the opportunity to stay focused, fast and frugal.

And I would say that we want to get through 2014. And then, as we think about it, as we go forward in 2015, we'll come back to you with a better layout of our strategy from an International perspective.

Thanks, Sharon, and thanks, Kimberly. Next question, please.

Your next question is from Janet Kloppenburg of JJK Research. Your line is open.

Hi, everyone, and congratulations on a good quarter. My one question is for Sharon. It's, PINK apparel business experienced a rebound in the first quarter, Sharon, after maybe a little bit of under-performance in the fourth quarter. I was wondering if you could talk about the strategy related to that, and how it looks going forward? Thank you.

Our PINK apparel business has bounced back very nicely coming [in] from the holiday. And I really attribute to the fact that we have a lot of agility, and with all of the speed models that we have put into place. I'm very excited about those assortments, not only from an apparel category perspective, but what's happening as well as in the bra and panty. So we have a very balanced assortment when we think about the intimate business, as well as the apparel category.

We feel very strong about the things that we've tested for back-to-school. As you know, as we come back into August and September, are big moments for PINK. And last year, that's when we stubbed our toe. So we are very optimistic as we go forward into that time frame.

Thank you.

Thanks, Janet. Next question, please.

Your next question is from Roxanne Meyer of UBS. Your line is open. Roxanne Meyer, your line is open.

Great. Thanks. Can you hear me?

We can now, Roxanne.

Great. Thanks. Good morning. My question is on La Senza. I just was curious to get an update on the game plan for revitalizing that business, and what your plans are there?

Sure, I'll take that, Roxanne. So La Senza continues to be a bit of a challenge for us. Not helped by headwinds in the last quarter, specifically related to Canadian retail environment, which has been tough. And also foreign exchange rates, which have gone against us somewhat. But that said, we continue to be very positive about, and optimistic about, the positioning of La Senza. The team's working incredibly hard to fix it. We'll stay the course, and we hope to have good news soon.

Great. Thanks, and best of luck.

Thanks a lot, Roxanne. Next question, please.

Your next question is from John Morris of BMO Capital Markets. Your line is open.

Thanks. Good morning. Congratulations in a tough environment, guys. Question for Stuart on the cost of the discontinued businesses in VS direct.

How did that cost, in terms of how it came out, compare to what your original expectations would have been? We were thinking maybe it was a little bit higher. But also, how are you seeing how it flows through Q2 through Q4? Any modeling guidance there? Given the guidance on Q2, it almost looks like your Q2 is actually still in pretty good shape, even taking into account some of the cost associated with that discontinuation. Thanks.

So in terms, John, of how it breaks in 2014, we'd see, between the direct apparel and the VS makeup, a couple cents, $0.02 in the second quarter. And the balance in the fall, spread pretty -- with a little more skew to Q4 than Q3. So a couple cents in Q2, and the balance in the fall, with a little more weight in the fourth quarter.

And in terms of a view versus original expectation, the fact is, these are decisions that were made within the first quarter, so we developed a view of this in prep for this call. That's where we stand.

Thanks a lot.

All right. Thanks, John. Next question, please.

Your next question is from Omar Saad of ISI Group. Your line is open.

Thanks. Good morning. Just a quick question on PINK. It seems like -- I think the planned store openings this year got tweaked down a little bit from last quarter. Just wanted to get a better understanding what's going on there. Are they changes in real estate availability, or any changes in your strategy around the brand? Thanks.

Omar, thank you. I think there was a shift of two. But there is no change in our strategy about us being aggressive with PINK. Very excited about the new store openings. I think anyway, at the end of the year, we'll probably have around 250 free-standing PINK stores between North America.

So we still see a lot of growth and opportunities within PINK. So we're pretty excited about that. But there's not been really any change in terms of real estate.

Yes, Omar, what Sharon said is right. I would guess that any changes from our previous forecast just have to do with timing and real estate changes and leases.

Thanks.

Thanks, Omar. Next question, please.

Your next question is from Simeon Siegel from Nomura Securities. Your line is open.

This is actually Gene Vladimirov on for Simeon Siegel. Thanks for taking my question. I wanted to ask if you could talk a little bit about the composition of inventory at Victoria's Secret? And also if you're making any changes to your approach for the buy in the second half of the year? Thank you.

Thanks, Vladimir. Sharon?

Composition of our inventory in Victoria's Secret is actually quite healthy. I think where we invested in the fall season was primarily in the bra category. We have come out of that very strong. We're excited about the newness, and our inventory is actually cleaner as we go into third quarter next year.

We have a lot of agility. We're continuing to focus on making sure that every year, we use our speed models, and actually recreate and reinvent our speed model. So I think as you look forward into Q3 and Q4, Victoria's Secret, across the board, will have more open to buy and agility than we did last year.

Thanks, Sharon. Next question, please.

Your next question is from Anna Andreeva of Oppenheimer. Your line is open.

Great. Thanks so much. Good morning, and thank you for taking my question.

A question on International, profitability saw a nice pickup during the quarter. Maybe talk about what drove strength there? How should we think about margins in International segment in 2014? And should we expect the owned stores footprint to be profitable this year? Or is it more about 2015, with bigger scale? Thanks so much.

Thanks, Anna. Martin?

Yes, so I think the best way to think about the change in the performance in International is just about new store growth, really, Anna. If you look at page 10 of the presentation, we'll have moved from 262 stores in the quarter to something around 400 by the end of the year. And all of those four businesses are growing, and growing at a healthy clip, driven by new store space and by comp growth in the existing stores.

As far as the profitability of the business is concerned, yes, we're not going to break down individual store performance. But I think you should know that we're pleased with the performance that we're making. We continue to see very good signs across all of those businesses. Stuart, did you want to add anything?

No, I think the only thing I would add, which has been our view on a consistent basis, is we expect the International business to have an operating income rate at or accretive to the enterprise rate. And that's what we're seeing, and we would expect that to continue for the balance of the year.

(multiple speakers) Thanks, Anna. Next question, please.

Your next question comes from the line of Jennifer Davis of Buckingham Research Group. Your line is open.

Hello, guys, congratulations. Just a question on Henri Bendel. Could you talk a little bit about that? We haven't gotten an update about it in a little while. And just any changes in the strategy or updates there? Thanks.

It's Stuart. I'll take that. So on Bendel, we're pleased with the results we're seeing in the mall-based stores. We've got the store on Fifth Avenue, as you know, and then we've got 28 stores in better malls throughout the United States. And those locations are growing sales at a healthy rate, and are realizing meaningful improvement in their merchandise margin rates.

So we're optimistic about the assortment, and we're seeing that play through in terms of the sales and margin results of the business. It's still in an early stage of development, but we're seeing good signs.

Thanks, Stuart. Okay. One last question.

Your next question comes from Mark Altschwager from Robert W. Baird. Your line is open.

Great. Good morning, and thank you. Could you just update us on the market intensification efforts, and any plans to accelerate that throughout this year? Thanks.

Hi, it's Sharon. We're very pleased with the market intensification. And as you know, we have moved now into our fifth market, and continue to see great results from that work, and we're continuing to learn. I think that we'll probably stay within this fifth market for the rest of 2014, and we'll add one new market in 2015.

Nick?

Yes, we continue to see very strong results in Chicago, and we've actually added a bunch more work to Chicago to continue to try and drive that. We're not, at this juncture, looking at the next one, because I think we're still in pretty strong learnings mode, and continue to see pretty solid results.

Thanks, Nick, and thanks, Mark. That concludes our call. Thank you all for joining us, and have a happy Memorial Day.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.