Bath & Body Works Inc (BBWI) 2016 Q1 法說會逐字稿

Good morning. My name is Lori and I will be your conference operator today. At this time, I'd like to welcome everyone to the L Brands first-quarter 2016 conference call. I will now turn the call over to Ms. Amie Preston, Chief Investor Relations Officer for L Brands. Please go ahead.

Thank you. Good morning, everyone, and welcome to L Brands first-quarter earnings conference call for the period ending Saturday, April 30, 2016. As you know, we released detailed commentary last night, which is available on our website. Given the shorter length of our call this morning, we will make some brief introductory comments in order to allocate more time to your questions.

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 statement found in our SEC filings. Our first-quarter earnings release, additional commentary, and earnings presentation are all available on our website lb.com.

Stuart Burgdoerfer, EVP and CFO; Nick Coe, CEO of Bath & Body Works; and Martin Waters, President of International are all joining us today. All results that we discuss on the call today are adjusted results and exclude the 2016 pre-tax charge of $34.5 million, or $0.07 a share, related to the actions at Victoria's Secret, and the 2015 pre-tax gain of $78.1 million, or $0.23 per share, related to the sale of our remaining interest in the third-party apparel sourcing business.

Thanks, and now I will turn the call over to Stuart.

Thanks, Amie, and good morning, everyone. Although we delivered first-quarter results above our initial expectations, we were not satisfied with our overall results, as adjusted operating income declined at 4% compared to last year, primarily driven by a decline at Victoria's Secret. We had a range of performance across the Company in the first quarter, with PINK and Bath & Body Works delivering strong results, and weaker performance at Victoria's Secret lingerie and beauty.

From a macro perspective, we did experience a deceleration in trend through the quarter, but we are focused on what we can control, and we have opportunities to improve our execution. It's important to note that we have made significant changes in the last couple of months at Victoria's Secret, making organizational and leadership changes, exiting merchandise categories, exiting nearly 300 people from the business, and changing our promotional strategy. We are making these changes proactively from a position of strength, and following a record fourth quarter in 2015 for the brand.

Our revised outlook for 2016 reflects the impact of the actions at Victoria's Secret, as well as incremental costs related to our plan to develop China as a Company-owned business. Our brands are strong, and we are energized about our opportunities for growth. We will continue to leverage speed in the business and be flexible and agile in our approach in order to maximize profitability.

With that, I will turn the discussion over to Nick.

Thanks, Stuart. I think the only comment I would add from the notice that went out last night is I've spent a fair amount of time in the stores over the course of the past few weeks so I'll comment on those observations.

I think, firstly, we remain pleased with the traffic and the energy we are seeing in the stores. Secondly, we are keeping customers pretty engaged through the newness and the compelling stories that we're telling, which is really important for us when you think of us as a destination brand, so we really need to continue to keep her engaged.

Certainly, for the most part, pretty pleased with customers' response to products and assortments and our collections. I think we can do better but pretty happy from that perspective.

As it relates to speed, really pleased with our ability to have been able to leverage the speed model into our ability to chase in the home business. That's been important for us, not only because it's the most difficult business to chase into but also because it's still a very healthy business for us.

We are pretty pleased in terms of what we are seeing from the real estate investment and the type of return that we are getting there. Again, we're relatively pleased with what is happening there and we will continue to monitor that and read and react as we would. And then, finally, as we see the marketplace remains pretty dynamic, we will continue to leverage our most important discipline, which is really the notion of staying as close as we can to the customer and then reading and reacting to her behavior.

I will turn it over to Martin.

Thanks, Nick. Good morning, everybody. As you would expect, I've been spending quite a lot of time in China recently, which we will now pursue as Company-owned. Although there is still much to do, I'm really enthused about the teams that we put together for China and the progress that we've made in readiness for the launch of our full assortment stores at the end of this year, and also our direct-to-consumer business which will open later this year in China.

I'm also very focused on growing our existing businesses in the UK which have been good, and in the Middle East, which have been tough recently, as well as on improving performance in the VSBA business. All in all, I feel good about our prospects for growth and, of course, remain focused on the fundamentals which are all about great execution of our brands wherever we go in the world.

Amie?

Thanks, Martin. That concludes our prepared comments this morning. At this time, we'd be happy to take your questions. Please, as a reminder so that we can get to as many of you as we can, please only ask one question. And Lori, I will turn it back over to you.

Your first question comes from the line of Matthew Boss, JPMorgan. Your line is open.

It's Christina Brathwaite on for Matt. Thank you for taking our questions.

Just with the goal of replacing the swim and athletic apparel merchandise, can you just walk through some of the puts and takes at exiting those businesses this year? And then any pressure that you are expecting in the SG&A reduction would be helpful.

Thanks, Christina. We'll go to Stuart.

Sure. The rationale, first of all, for the category exits is to focus our energy at all levels of the business, our resources at all levels of the business, on our most significant core categories -- bras, panties, beauty in the Victoria's Secret business.

We came to a conclusion that the swim business was not one of those core categories. It had been a flattish business for the last several years, many years. And we're putting our energy against those core categories to accelerate growth in bras, panties and beauty.

It is going to put some pressure on the business, along with some of the promotional changes that we're making -- last direct mail couponing, et cetera. But as you outlined in your question, we have some expense savings that we have actioned, as well. Including the elimination of the catalog spend, and a meaningful reduction in our home office overhead, which, in part, offsets the sales and profit pressure from the category exits, and the impact of the promotional changes that we are implementing.

But at the end of the day, as outlined in our commentary that we sent out last night and the brief remarks that we've made this morning, we are making these changes from a position of strength to accelerate growth in these core categories. And there will be some short-term financial pressure, as outlined in our guidance, both for Q2 and the full year.

But we will then work hard to beat that guidance, as you would imagine. And we are absolutely confident that these changes are the right thing to do for the long-term health of Victoria's Secret, and again, to accelerate growth in that business.

And, Christina, I just want to clarify something. In your question you said we were exiting athletic apparel.

What we are exiting is apparel that we are now selling in the direct channel that is not carried in the stores. So, it's things like t-shirts, sweaters, boots, for example. So, we are still very focused on growing our sport and athletic business.

Right, I misspoke. I think I was trying to say you were replacing the athletic apparel or replacing it with more additional athletic apparel?

Again, we're not exiting athletic apparel, just to be clear. We're not exiting athletic apparel. We believe strongly in the sport category.

Our primary focus in that category is in sport bras but we sell a lot of sport pants and related sport merchandise. And we have a strong belief in that category and we are realizing good sales growth in that business. So, we're exiting non-athletic apparel at Victoria's Secret direct that's not carried in the store.

Your next question comes from the line of Brian Tunick, RBC Capital Markets. Your line is open.

Thanks. Good morning, everyone. Two questions.

One, Stuart, do you view 2016 being the resetting year or do you think there is potential more pressure in 2017? Do you think you can grow our earnings again next year?

And then the second question really is on the expected traffic impact on pulling back from these promos. You've mentioned macro a lot in the script. I'm just wondering what's going on in the core lingerie business, yet you feel confident you can pull back on some of these promos and still drive improving comps.

Brian, I appreciate you asking the question about is 2016 a reset year and then how do we think about 2017. One of the things I love about working for our Company, and Les' point of view most significantly, but the leadership team, our point of view, is that while we have reset that guidance, and I'm not altering that guidance in mind set, this is not a reset year at all.

We're going to have some challenge in the near term and we've done our best to outline that in our guidance. But I will tell you, starting at the top, and with some acknowledgement of short-term pressure, we are going to work very hard to exceed that guidance. And in no way do we have in our mind that 2016 is a reset year with no growth.

Again, the guidance is the guidance but you should know, and you've known us for a long time, our mindset is we're going to work very hard to drive great experiences customers, very strong sales growth and resulting profit growth. So, I'm glad you asked the question.

Obviously, from that, expecting a very good 2016 after some short-term pressure. Again, the guidance is the guidance. And then certainly expect a very good 2017.

So, good question. With respect to, Brian, the traffic generated from direct mail, couponing, were working hard to replace that volume and that profit. Again, we are doing it for reasons that I think you appreciate from our earlier remarks in terms of doing promotion that drives trial in key categories, and at the end of the day is healthier, we believe, for the business.

But in the short term it's challenged. But we are doing a lot of things in terms of tests and rolling different ideas to ensure that we have healthy traffic and good sales results. That will be a week-to-week, month-to-month exercise, but it's being very actively worked on Mondays and Tuesdays every week, and with good tests and learning and adjustment.

Again, another thing I really enjoy about the Company and respect about the Company is that we test, we read, we react, we are agile in our thinking and in our execution. It's more dynamic right now than typical, no doubt about that. But I am confident we will read and react and adjust appropriately.

Your next question is from Richard Jaffe, Stifel Nicolaus.

Thanks very much. A two-part question. The lost sales you described of $525 million, could you just give us a sense of how that will break out apparel and shoes from the direct channel, and the swimwear from both direct and stores?

So, the impact on stores versus direct. And then if you could just comment on how this is different from 2014 when you consolidated the store with the catalog and eliminated a number merchandise categories at that time. Thank you.

The biggest component of that, Richard -- thanks for the question -- is the swim business. It distorts or mixes higher to the direct channel versus the stores channel. The apparel that we are exiting that we'd commented on already in the call, that was solely in direct, and the swim business was larger in the direct channel than in the store channel.

I'm not going to go deep on numbers but, directionally, that would be the way to think about it. And that's how it frames. Was there a second part to this question?

How it's different from 2014.

Thank you. What's different about this versus the earlier exits, Richard, is that truly now, with these changes, we will only sell merchandise in the direct channel that's sold in the store.

And while we made important exits, as we all remember, earlier, we still had merchandise styles and categories that were sold online that weren't sold in the store. And with this set of changes, the offering will be truly the same online as it is in the stores.

Part of that, frankly, is to take out complexity and simplify the business and focus the business. But that's how I'd characterize it.

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

Great, thanks so much. Stuart, my question is on inventory. Here at the end of the third quarter I think you said 3% at retail.

And I think you guided mid single-digit growth at the end of Q2. It just seems a touch higher than your inventory has been running. I'm wondering if you can comment.

Are there some pockets of excess inventory here in the first half of the year that you think you need to work through in the second half? And medium to longer term, what inventory growth rate do you think is appropriate for the business? Thanks.

Our thinking about inventory and inventory discipline hasn't changed. And I'm not saying that because it's convenient. It just hasn't changed.

With that said, we are experiencing some short-term sales pressure for the reasons described, in the context of sales. So, Kimberly, it's going to be up mid single, as we outlined. In terms of any significant pockets of inventory that we are concerned about, I'm not -- we're not, and we're very focused on ending the spring season clean and at the right levels.

And that's requiring some pretty intensive energy right now. But it's a discipline that's very important to us. And while mid single is a little ahead of sales, certainly not dramatically ahead of sales, and we are working it actively to get to that result.

But again, not intending to have any significant pockets of inventory in the business that we won't have dealt with through the semi-annual sale activity, as we wrap-up the spring season.

Thanks, Stuart.

Dana Telsey, Telsey Advisory Group. Your line is open.

As you think about Victoria's Secret's business and the people and product changes, how do you think about the guideposts of how that business changes goes forward, whether its new product introduction, how you're thinking about integrating loyalty, and what does this mean for the long-term top-line growth for the business? Thank you.

Dana, at the risk of being repetitious, which I'm certainly not intending to be, we are making important changes to the business. So, just, again, to step back in an effort to respond to your question, we think that reorganizing the business into three units -- Victoria's Secret lingerie, Victoria's Secret PINK, and Victoria's Secret beauty -- each of which have the stores and direct activity under common leadership for those three businesses, we think that's an important change in organization that will simplify and focus the business on those three broad categories.

In terms of guideposts or objectives, the purpose of all of it is to ensure that we are focused, and to accelerate growth in core categories. Obviously, PINK has been our strongest performing business over the last several years and that sales trend, that sales performance, has continued in 2016.

Beauty has been the weakest of the three businesses, and, as we shared in our commentary, a new leader joining the business at the beginning of this month. It will take some time. A logical question we get asked, understandably, within and outside the business is how long will it take to substantially improve the trend of that business.

It is a bit longer in lead time and cycle and approach development activity than some of our other categories. But with new Leadership and, again, the focus through the organizational changes I mentioned, certainly optimistic that we will see an improvement in trend there.

And then the lingerie business, the core of the core in terms of bras and panties. A new leader coming in at the beginning of September with very substantial experience, and an existing strong leadership team. So, an additional resource in leadership leader coming in to strengthen that team but coming from a good base.

And, again, optimistic through these changes that it will accelerate growth in all of the measures, whether it's customer satisfaction, sales growth, margin improvement, inventory turn. Those are all the things we will be driving towards.

Thank you.

Betty Chen, Mizuho Securities. Your line is open.

Thank you, good morning. I was wondering if you can talk a little bit about the thinking behind China and making it Company-owned versus franchise and the timing right now, and when we can expect some contribution from that business. I know that there's already 26 stores. Thanks.

Thanks, Betty. We will go to Martin for that.

Hi, Betty. Thanks for the question. China is obviously a massively important market for us.

We've been very engaged in the last 12 months with our partner there, who's done a terrific job. Really, they did a great job in standing up some 26 VSBA stores.

But as we look forward and we think about the sheer scale and opportunity in the market, and we combine that with the intrinsic complexity that there is in China. Particularly around regulatory affairs, around how we build our stores, how we operate those stores, it seems to me that we're going to be doing most of the heavy lifting anyway and it makes sense we should be in it completely.

When can you expect that it should start to make a contribution? The sales contribution will start at the very end of this year. From a profit point of view, I don't really know.

Our experience in the UK is that it takes two to three years to get a business from the investment phase to the profitable phase, and it really depends on the amount of time that we take to build it. Our goal here is to be in it for the very long term, rather than to take short-term gains. Hope that gives you some insight.

Martin, do you see the customer behaving any differently than you've seen in the US or elsewhere?

The business that we've got right now is the beauty business, and that performs remarkably similarly to the rest of the beauty business globally. One of the neat tricks about the VSBA business is that it's a replication model of what we do here. The sales patterns that we see are very broadly similar everywhere.

To the extent that lingerie will be different -- we don't really know. We will find out at the end of the year when we open the stores, and you'll be the first to know if you call me.

Okay, great. Thank you. Best of luck.

Paul Trussell, Deutsche Bank. Your line is open.

Hi, good morning.

I just wanted to ask a question regarding the catalog. You mentioned that you had tested over the past year, reducing the distribution. Maybe you can just give us a little bit more insight on the results of that test and thoughts overall around catalog impact.

And then, just secondly, with the sales guidance adjustment that was made to flattish comps, can you just speak more specifically about where that downtick occurred? Is this simply a slowdown expected across each of the banners equally? Or to what extent is this more of a beauty biz stepdown, lingerie, et cetera?

Great. With respect to catalog, we did test the elimination of catalog into significant markets for a year and saw a relatively small to no impact on sales. If one does simple math on it, you need to get a lot of sales, or a meaningful amount of sales to pay for the catalog.

In round numbers, we were spending $125 million to $150 million a year on the catalog. And we ran it again for a year in two significant markets and did not see a significant change in sales. Separately, and I think importantly for the whole business, in the fourth quarter of 2015, we reduced our catalog activity by nominally 40%, and demand in the direct channel was up, if I remember right, about 15%.

Both based on the two markets that we tested in, and significant reduction in activity in our fourth quarter of last year for the whole business. It made us confident that, while there may be some sales pressure, certainly from an operating income standpoint, meaning did it pay for itself on an OI basis, we felt that this was an appropriate change to make in our business.

Importantly, one of the things that we try to do is we say, if we were starting this business today in current context 2016, would you start with one of your major ideas being a paper-based catalog sent through the mail as one of your key, if not your key, marketing activity for a global brand. And as we thought about it in that way, along with the numerical tests and financial evaluation, very comfortable with the change that we've made.

Separately, with respect to your second question on sales guidance and the reduction in comp guidance, I'm glad you asked. It's important to know that, as we outlined in our overall remarks, we have a range of performance in our business. So, in terms of the sales reduction, we haven't changed our assumptions about Bath & Body Works at all.

Bath & Body Works grew operating income 15% in the first quarter. There will be some occupancy pressure in that business in the latter half of the year in connection with the remodel activity for the White Barn and Bath & Body remodel. But Bath & Body is running a very good business.

As we also outline, the PINK business is very strong. So, I wouldn't want outside analysts or investors to think that L Brands has a broad-based concern about sales trends. We actually have important parts of our business, most notably Bath & Body Works and PINK, that are doing very well.

And we've got some pressure in other parts of our business, in part due to changes that we are making in terms of category exits and reduction in promotional activity, but some weakness in the beauty business that we've been experiencing now for some time. So, a range of performance.

Overall, yes, we've taken our numbers down but it's due to very specific things in only certain portions of our business. Thank you.

Anne-Charlotte Windal, SC Bernstein.

Good morning, thank you. Two questions, if I may. The first one is a big picture question.

Taking a long-term view, what does the VS business look like five years down the road? What is the contribution from PINK, lingerie, beauty, sports? And what would you like this business to be in terms of operating margin?

And then I was wondering if you could also give us a little bit more detail on the impact from the category exits. If you could help us think through the seasonality of the $525 million business that you are exiting.

What is the cadence of the exit, and the expected impact to the comps in the back half of this year and then through FY17, as well. Thank you.

In terms of what the Victoria's Secret business looks like an aggregate and by major components five years from now, as a mindset, and in terms of goals that we aspire to in our business, in many periods we accomplished. We're looking to grow the top-line sales in major parts of our business on the low side at 5% per year, and on the high side when we're doing really well 10% or 15% per year.

In terms of what are we trying to get done top-line-wise over the next five years, it would be growth ranging from 5% to 15%, depending upon category and, frankly, how well we execute. In terms of the operating income rate for the Victoria's Secret business, this is one of the best brands in the world.

And from that brand equity, emotional content, leadership position, when we execute really well, we have pricing power. We deliver emotion, great customer experiences, differentiated from competition, and that creates pricing power, which ultimately creates productivity and margin.

So with that belief, then we've got to work hard to continue that leadership position. We believe the operating income rate for Victoria's Secret should absolutely be high teens, if not 20%, when we think about our own history and the best in the world. So, hopefully, that gives you some sense of our thinking and what our goals are over the next five years.

In terms of the exits and their seasonality, we will sell through the swimsuit business that we have in stores in the spring season. And to the extent that we have some swim inventory remaining after spring, we will sell that through the fall season 2016 in the direct channel. That's our current thinking and our current plan.

With respect to the apparel exit, again, that's solely in the direct channel. And we will sell that both in the spring season and, to some extent, into the fall season. We're looking to, particularly in the store side of the business, move through the inventory -- this is about swim -- at a pretty reasonable pace to simplify store level execution and, frankly, to free up space for other categories like core bras and sport and other things.

But we won't be as urgent with respect to the swim and non go-forward apparel exit in direct because it doesn't create the same kind of complexity from an operational standpoint in that channel. So, in terms of dollarizing that by quarter, it's going to be more dynamic. But hopefully that's helpful to you in an overall modeling sense.

Thank you.

Lorraine Hutchinson, Bank of America. Your line is open.

Thank you, good morning. Stuart, the comments around the catalog testing were very helpful. Can you provide any color around what you've done to test cutting the promotional cadence and what results you've seen there?

And then what portion of the $525 million of discontinued categories will hit revenue this year versus next?

With respect to the change in promotion and testing of that, we have pretty reasonable measurement of attached sales and the view of incremental sales related to our historic promotions -- meaning, we have pretty good analytics around what we got from that activity historically. What we're doing now, as I think you appreciate, is we're looking to replace that activity -- which we called it customer relationship management, what it really was couponing through the mail, in many respects.

We're looking to substitute that with various category level promotions, in particular that drive trial of key categories. That activity and the results from that new activity are being evaluated every week. So, that will be dynamic

And while the nature of the offers that we utilize through direct mail, which most typically were a free panty and $10 off a bra. We've concluded that, A, we've been running that for a long time; B, a lot of customers came in and got their free panty and didn't buy anything else. So, we think there's a cleverer way, a smarter way, to drive traffic that's more healthy for the brand.

The details of that are being literally worked every week, including test of key promotional ideas in the business. So, hopefully that gives you some sense of it. It would be easy to return to the prior approach.

We know what it's worth, we have a pretty good sense of what it's worth. What's important here is we are making important changes in the promotional approach to the business for the long-term health of the business.

It wouldn't be hard to turn that stuff back on. In our collective judgment, the right thing to do for this business is to have smarter ideas about driving trial and driving traffic versus get a free panty and $10 off a bra.

And, Lorraine, I'll try to help a little bit with that $525 million of exited sales. I'd say this is very big picture, high level, but about two-thirds of that is swim, and the remainder is apparel.

As you can expect, we typically sell most of our swim business in the first half of the year, and we still have that product that were selling through this year, so that impact will be more fully felt in 2017. The apparel business, we're winding that down through this year so we will see some of that impact in the back half of this year, and then the remainder of the first half of next year.

And Amie is outlining particularly on a sales standpoint. There will be some margin pressure in 2016, and it's contemplated in our guidance, margin rate pressure in 2016 -- margin rate pressure related to the exit activity that we are talking [about].

Thank you.

Omar Saad, Evercore ISI. Your line is open.

Good morning. Thanks for taking my question.

I was hoping maybe you could dive into a little bit more detail around the Victoria's Secret lingerie category, what's going on there, especially in bras. I'm wondering if you could specifically maybe address the bralette trend, and is that something that's significant -- a lower price point but maybe higher units.

Any greater details around the category outside of the macro would be helpful, and where you think the opportunity to improve, would be great. Thanks.

Yes, Omar, thanks. First of all, our total bra business -- lingerie, PINK and sport, store and direct -- grew in the first quarter. So, in aggregate, all types of bras, across both channels, had positive sales growth, high to low single digits, in the first quarter.

There are, clearly some trends in the business, including the bralette trend that you mentioned, and I think it is well known and been well covered, and we are participating in that trend in a big way, as you would expect a market leader or the market leader to do. Frankly, there is nothing new about that.

We are in a business that has different fashion trends from time to time. And, hopefully, in most cases we're leading those trends and certainly taking good advantage of those trends. In things like sports bras or bralettes we think we're participating well with respect to those trends.

Again, total bra business, including PINK, up. Certainly, some changes in trend that you comment on that we are participating in. We're not satisfied with a bra business that's -- we want it to grow faster than that, and particularly in the core lingerie part of it.

It's not a sick business but it's not growing at the rate we want. And it's so core to this business that's in part why we are making some of the organizational and leadership changes that we've talked about.

Thanks.

Anna Andreeva, Oppenheimer. Your line is open.

Great. Thanks so much. Good morning, guys. The question to Stuart on SG&A, an increase in the guidance for the year from previous for flat.

Help us reconcile that despite the additional savings from catalogs and headcount reductions. And should we expect additional SG&A opportunity into 2017? Thanks.

The SG&A guidance is expressed on a rate basis, on a percent of sales basis. And what you are noticing in the change is the effect of us lowering our sales assumption.

So, on a dollar basis, not a meaningful change from the view that we had [around] three months ago. We will continue to mine for expense opportunities.

As we've outlined, we have reduced the home office at Victoria's Secret in a meaningful way. By the way, a tough thing to do as a business leader and as business people, but from time to time we make difficult decisions for the long-term health of the business. That would be an example of one of them.

But we will continue to be tough-minded about expenses. And, again, the change you're seeing in the guidance is largely about a change in sales assumption versus a change in expense assumptions.

And, Anna, just to clarify one thing in your question, catalogue costs are actually in buying and occupancy and, therefore, you wouldn't see that as a reduction to SG&A.

Your next question is from Lindsay Drucker Mann, Goldman Sachs. Your line is open.

Thanks, good morning, everyone.

I wanted to clarify, to the degree that you've decided to get rid of a bunch of different types of promotions and then we'll figure out other better, high-quality ways to engage the consumer going forward. Was the elimination of those specific promotions, did that happen completely in May? Or, as we think about balance of year, is there maybe a gradual step forward process where the headwind from reduced promos intensifies as we get deeper into the year?

And then maybe just to tack on a second one, on a different angle, just given your high-level view of the world, I was hoping, Stuart, maybe you could lend some perspective on what you think might be going on with the consumer right now. Thanks.

With respect to the promotional changes, and particularly the direct mail promotions that we've changed, we came to a conclusion about that, or a decision about that, in late March, which we implemented beginning in April. But, as you would appreciate, Lindsay, the specific activity that we are lapping -- or anniversarying from last year varies by month. There is a meaningful amount of activity in May of 2015 that we're lapping.

And, again, it does vary some by month. So, saw some but not a lot of impact in April. We will see more in May.

The other thing going on with May is there is the Memorial Day shift that affects comp, we think, between 1 points and 2 points, as well. But that would be the color on the timing of our decision around the direct mail pullback. And, again, the impact will vary some by month.

And then with respect to big picture view of the consumer, Nick could comment on that from Bath & Body. And his accent is better than mine so let's listen to him for a while.

Hi, Lindsay. I think she's behaving pretty consistently, actually, in an odd way.

I think she continues to want to be excited. I think she continues to want to have a story or a compelling story told to her, even though she remains value oriented. But if she sees something that she likes or if she is engaged, clearly that value-price fluctuates.

And we can see it in both ways. We see it fluctuate, it's really important when a compelling story isn't told, but we can also see it become significantly less important when the product is good. So from that perspective, I think it's actually pretty consistent behavior.

There's a lot of talk about where is the customer, what is she doing? But from our perspective, I think it's a pretty consistent story. And I think that also ties itself to traffic where we've seen pretty consistent levels of traffic.

Now, we are having to work very hard to maintain the traffic, given the mall status, but my overall point of view is that the traffic is there, we are working hard to get it, and her behavior is consistent. At the end of the day, when big periods happen, big time frames such as Mother's Day, she's still coming out and she still wants to participate. That's my overall point of view in terms of the macro level of what's going on with the customer.

Do you observe any differences by region or mall type?

No, not dramatic differences. It's very difficult by region because regions come up, regions go down, regions come up. On aggregate that seems to be about okay.

Obviously some malls are better than other malls. We have a very broad mix because we're not just in core malls, we're also in strips, power centers.

Sometimes we see different mix as it relates to products by mall. But in general, we've been pleased with the relative consistency.

Lindsay, just to add on, it really goes with the point we're trying to make, which is, we had a wide range of performance in our business. So, Bath & Body had a very good quarter, all metrics, all measures. PINK had a very good quarter in business.

We are not sensing some broad-based issues, but rather specific execution opportunities, which we are proactively getting after. But we're not of a mind that there's some major macro phenomenon going on that's impacting all of our businesses, because we had a wide range of performance, including some very good in the quarter.

Thanks, Lindsay. We have a Board meeting, unfortunately, that is starting. I apologize. I know we are going to leave many of you, probably, in the queue but we will take one last question.

Your next question comes from the line of Michael Binetti from UBS.

Thanks for squeezing me in here. Thanks for all the detail. Obviously there's a lot of balls in the air.

Two questions really quickly on the guidance. Can you help me think about a few of the changes, particularly it looks like it's about a low teens reduction in the free cash flow for the year. The CapEx didn't change.

We can, I think, back into the net income. It looks like the change is based mostly on net income. Is that fair?

Is there anything to think about related to working capital? Any change in the working capital profile of some of the new businesses you're getting into?

Short answer is, no, no major changes. The change in free cash flow estimate, which, again, remains very healthy, is related to the adjustment in income.

And then could you just give me one thought on -- you mentioned that you're only going to be selling online what's being sold in stores. And that's a little bit different than what some other retailers in the space have been saying.

It seems like it's been more liberating for other people to say we can offer a wider array of product online than we do in stores. Do you have any thoughts on what might be different for your business versus what we've heard in some other areas in the sector?

Yes. We just believe that focus is so fundamental to what we do. It starts with the beginning of this business more than 50 years ago, which as a specialty retailer, being extraordinarily good at a very few things.

And while it's tempting, and we were tempted by it, that you can sell a lot of things online, and you can do so, in some respects, quote, more efficiently than in stores, we believe that the power and advantage of focus and the consistency between channels far outweighs the increment that you pick up by adding categories online.

Nick, any thoughts there?

Yes. Hi, Michael. I think, at the end of the day, what we are trying to really achieve is a very seamless customer experience so that the brand stands for the same thing whether you're in a store or whether you're online.

And the benefits that we get from that are not just from a brand perspective but the alignment of same product, same price, same promo, same cadence and messaging really drives terrific efficiency and it doesn't confuse the customer. So, I think it's a win-win on both sides when we get very good alignment of the marketing message, the brand message and the product message.

Thanks, everyone, for joining us this morning. We appreciate your interest in L Brands.

This concludes today's conference call. You may now disconnect.