LandBridge Company LLC
Q1 2021 Earnings Call Transcript

Published: 20 May 2021

[Operator:]

Good morning. My name is Cedric and I will be your conference Operator today. At this time, I would like to welcome everyone to the L Brands first quarter 2021 earnings conference call. Please be advised that today’s conference is being recorded. If you’d like to ask a question, please press star then one.

[Amie Preston:]

Thank you. Good morning. Welcome to L Brands first quarter earnings conference call for the period ending May 1, 2021. 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 and in our press releases. Joining me on the call today are Andrew Meslow, CEO of L Brands and Bath & Body Works, Martin Waters, CEO of Victoria’s Secret, and Stuart Bergdoerfer, CFO of L Brands. All results we discuss on the call today are adjusted results and exclude the special items described in our press release. Thanks, and now I’ll turn the call over to Andrew.

[Andrew Meslow:]

Thanks Amie, and good morning everyone. We delivered record results in the first quarter and we could not have done so without the continued dedication and extraordinary efforts of our team of associates and partners. Our adjusted earnings per share of $1.25 significantly exceeded our initial earnings guidance of $0.35 to $0.45, driven by stronger sales and higher merchandise margins rates than we initially forecasted. Performance was strong across the whole quarter. March benefited from stimulus payments hitting customer bank accounts, and we ended the quarter strong with good Mother’s Day holiday performance at both businesses. At Bath & Body Works, we continued to deliver record results. Our U.S. and Canada stores increased sales by 47% compared to 2019 and our direct channel sales increased 123% versus 2019. All categories achieved solid growth and strong sales demand continued to allow us to pull back on promotional activity. Operating income in the first quarter was $380 million, an increase of 127% compared to 2019. Our operating income rate for the quarter of 25.9% increased 760 basis points compared to 2019, driven by merchandise margin rate expansion and leverage in both buying and occupancy and SG&A on the high sales growth. As we announced last week, our board has unanimously approved a plan to separate the company into two independent public companies

[Martin Waters:]

Thanks Andrew, and good morning everyone. The Victoria’s Secret business continued its transformation with an exceptional first quarter performance. Total comparable sales increased by 9% compared to 2019 and our gross profit rate increased by more than 1,100 basis points. Compared to 2019, operating income increased by $213 million or 665% to $245 million, with an operating income rate of 15.7%. Customers are noticing and applauding our efforts to reposition the brand. We began that work by listening both to our customers and to our associates. We heard from them what they love about our brand, including the unmatched beauty, quality, fit and innovation in our products, and we also heard clearly what they want from us as a brand, which is all about representing and celebrating all women and being there for every moment of their lives, including supporting and advocating for things that matter most to them, and that’s exactly what we’re doing.

[Amie Preston:]

Thanks Martin. That concludes our prepared comments. At this time, we’d be happy to take any questions you might have. In the interests of time and consideration to others, please limit yourself to one question. Thanks, and I’ll turn it back over to the Operator.

[Operator:]

Our first question comes from Kimberly Greenberger with Morgan Stanley. Your line is open.

[Kimberly Greenberger:]

Fantastic. Good morning. Great quarter. Before we launch in, I just want to say congratulations to Stuart. I think this is your last call with us, is that correct?

[Stuart Burgdoerfer:]

Probably so, Kimberly. We’ll see. Probably so. Thank you very much. It’s been a real joy and pleasure, a real honor. Thank you.

[Kimberly Greenberger:]

It’s been a really, really impressive career, Stuart, and we’ve enjoyed the journey with you. The only ask is if you could add us to your Instagram so we can live vicariously through all your future vacations, travel, and all of the fun.

[Stuart Burgdoerfer:]

I’m now blushing - okay. Back to business!

[Amie Preston:]

Thanks Kimberly.

[Kimberly Greenberger:]

I wanted to know if--Andrew, if you could just talk to us about the new Bath & Body Works fulfillment center. Obviously you’ve had an explosive digital business over the last year. It seems like you’re sort of planning additional capacity to continue to grow that business. Maybe you could just talk to us about the strategy, the rationale, and when you think that facility is going to be complete. That would be excellent, thanks so much.

[Andrew Meslow:]

Great, thank you for the question, Kimberly. To your point, yes, we continue to see tremendous growth out of our Bath & Body Works online business. As we just reported, results on a two-year basis for the direct channel were up 123% in the first quarter, and that’s after the full year 2020 where the business essentially doubled, so very pleased with the momentum we continue to see there. As you reference, we are continuing to increase dramatically our fulfillment capacity. We were surprised to the upside last year at the beginning of the pandemic and while our partners did a great job of expanding capacity throughout the year, we reference in our script that we were a little bit backlogged at the end of the first quarter last year, and so we’ll feel some of that impact on a year-over-year basis in the second quarter. But as we’re looking out to the long term, while we’ve been very, very satisfied with our ability to work with third party providers on our fulfillment capabilities, we also recognize that as this business becomes larger and larger, we want the opportunity to also have some of the capability in-house, which is why we are adding the additional center that you’re referencing. While we’ll start to work in that center through the year this year, it really won’t be online for full capacity until the back half of 2022, so while we’ll get some benefit from it in early 2022, it’s really preparing for the holiday peak at the end of next year that we’ll be reliant on that new capability. We’re also adding a lot of automation into that center, which will be new and cutting edge for us as we continue to figure out how to operate all of our fulfillment centers both as efficiently and effectively as possible go forward.

[Amie Preston:]

Great, thanks Andrew. Thanks Kimberly. Next question, please.

[Operator:]

Our next question comes from Lorraine Hutchinson with Bank of America. Your line is open.

[Lorraine Hutchinson:]

Thanks, good morning. I’d like to ask a question about the comp drivers for both businesses over the medium term. Andrew and Martin, can you talk a little bit about your confidence in the pace of innovation that you’re developing now to continue to drive consistent same store sales in the coming years?

[Amie Preston:]

Thanks Lorraine. Andrew, do you want to start?

[Andrew Meslow:]

Sure. Thank you for the question, Lorraine. You know, at the highest level, I would reiterate that the way we look at our business across all of our businesses is asking ourselves the question first, are we in fact in the right categories. As you can imagine, especially here over the last 18 months, the strong answer to that question for the Bath & Body Works business has been an absolute yes, whether it’s the soap and sanitizer business that obviously has gotten a lot of momentum appropriately here during the pandemic, but then also our home fragrance business has people have shifted their lifestyles to be spending a lot more time at home, and then our body care business which represents a real opportunity for people to treat themselves and to have a spa day, if you will, without ever leaving the house.

[Amie Preston:]

Thanks Andrew. Martin?

[Martin Waters:]

Yes, sure. Similar to what Andrew said, we feel very good about the categories that we operate in. Maybe if I touch on four or five things that have been really driving the comps, and then I’ll address your question about innovation. What’s been really working for us to drive those comps are, firstly, better merchandise, particularly with a focus on good-better-best structures and really sharp opening price points. A second thing would be the improved brand positioning, moving from a position of, frankly, being irrelevant to being relevant, to being for him to for her, being more inclusive rather than exclusive, and the customer is really noticing it and voting with her wallet, so that’s great. I think thirdly, substantially better merchandise planning and allocation. When we’re at our best, we go into the season only 50% bought and then we chase into real-time winners, and that’s worked very well for us in the back half of ’20 and into ’21.

[Amie Preston:]

Thanks Martin. Next question, please.

[Operator:]

The next question comes from Dana Telsey with Telsey Group. Your line is open.

[Dana Telsey:]

Good morning everyone, and Stuart, it certainly has been a pleasure. Best of luck. As you think about the Victoria’s Secret brand and the new marketing that you’ve put in place, you mentioned the strong Mother’s Day that you’ve had, marketing as a percent of sales, how are you thinking about, what are your other initiatives with marketing that we should be looking forward to as we move on this year, and BOPUS was something that was mentioned as an initiative, where are you in each brand and how does that come to fruition? Thank you.

[Amie Preston:]

Thanks Dana. Martin?

[Martin Waters:]

Yes, I’ll try and remember those questions in order, but you might need to prompt me, Dana. Our intention over the long run is to get back to investing about 5% of retail sales in the Victoria’s Secret brand. If you think about us as aspiring to a $7 billion brand, we’d be spending $350 million supporting that brand across a wide range of activities. What’s different about that is the way that we spend money in the modern era is completely different than the way we spent money historically, so you should see very significant change there. The second part of the question, remind me, Amie?

[Andrew Meslow:]

BOPUS.

[Martin Waters:]

Was about BOPUS, so as you know, we were late to the party on BOPUS and ship from store, but we are there now, so we now have about 100 stores up and running with both of those two activities, and we will be moving that to 200 stores by the end of June. That, we think, covers most of the nation. Both of those initiatives are exciting. Obviously buy online, pick-up in store is well regarded by customers, but the ship from store is particularly interesting for us because it enables us to leverage inventory where it exists, rather than where we’d like it to be, so very significant there. Then I think the third part of the question--

[Amie Preston:]

I think that was it.

[Martin Waters:]

Was that it? Other marketing initiatives? I think it was what else we should expect for other marketing initiatives. You should expect that we will start to invest in digital media more fully than we have historically. You should expect that we will have people representing for our brand who are more inclusive and more diverse, who represent our customer base in a much more inclusive way than we have done historically. I think those are the key points to know.

[Amie Preston:]

Thanks Martin. Andrew?

[Andrew Meslow:]

Hi Dana. In terms of Bath & Body Works and buy online, pick-up in store capability, as a reminder, we had had that in Works fortunately as a pilot right as the pandemic hit last year, so we were able to roll that out in a limited way last year, really primarily in markets that were either fully shut down or experienced very, very tight capacity constraints. We got some very critical learning around the capability as we went through the back half of 2020. As we’ve come into 2021 now, we’ve been able to roll out the BOPUS capability to right around 400 stores as we finish off Q1, and we intend to roll that to an additional 100 stores by the end of the second quarter. Primarily, as you might imagine, this is a capability that appears to be most effective and most well received in our off-mall locations, where it’s easier for the customer to drive up and enter the store without having to walk through the mall, and we also in general have more space in those locations in order to be able to accommodate the packing and checkout required for BOPUS. We’re very, very pleased and excited we’ve gotten both qualitative feedback from customers on the capability and the early financial results are also promising, so definitely something that we’re excited about rolling out further. As we think about the future and build-out, especially of our off-mall locations, we’ll be taking into account how to design stores in order to even better accommodate the BOPUS and ship from store capabilities. Thank you.

[Amie Preston:]

Thanks Andrew. Next question, please.

[Operator:]

Our next question comes from Matthew Boss with JP Morgan. Your line is open.

[Matthew Boss:]

Great, thanks, and congrats on another really nice quarter. Maybe this one’s for Andrew and Martin. As we exit the pandemic, are you seeing any slowdown in top line momentum so far at all in the second quarter at either concept, and on profitability, could you just help walk through the drivers by concept of what’s embedded in the low 40s gross margin forecast for the second quarter?

[Amie Preston:]

Sure. Andrew, do you want to start?

[Andrew Meslow:]

On the first part of your question, Matt, I think we said in our prepared remarks that May has gotten off to a good start, a start that I’ll say in Bath & Body Works is in line with the results that we were seeing in the first quarter, and that that is embedded already in the guidance ranges that we provided. From a category standpoint, what we also called out was that we saw very balanced performance within the first quarter, within our big three categories, and I would say that that trend has also continued so far into the second quarter, and we would expect it to continue for the balance of the quarter.

[Amie Preston:]

And margin rate outlook?

[Andrew Meslow:]

Sorry?

[Amie Preston:]

Margin rate outlook.

[Andrew Meslow:]

Yes, so when we think about--I’ll comment on merchandise margin, if that’s helpful. From a standpoint of merchandise margin improvement that we saw through 2020, as you know, was very significant as we were able to pull back dramatically on promotional activity, and that momentum, as we called out, also continued into the second quarter. We would not expect that second quarter merchandise margin on a year-over-year basis to improve, and that’s really because last year we had essentially no semi-annual sale activity versus this year, a more normal year with more normal approaches to the business, we will have that. Historically, if you look back at margin over Q2 compared to Q1, our merchandise margin has tended to decline quarter over quarter by about 400 to 500 basis points, and when we look back and compare to 2019, which is really what we’re trying to do as a more normal year, that’s the type of relationship that we would expect here in the second quarter.

[Amie Preston:]

Great, thanks Andrew. Martin?

[Martin Waters:]

Yes, substantially similar picture to what Andrew described in terms of the first quarter. We accelerated into the back half of the first quarter, meaning the latter two months were stronger than the first month. May has been about the same as we saw from April, and that’s really encouraging given that the stimulus effect has obviously been done and is behind us, so we’re seeing very good momentum that we expect to continue. What’s also very pleasing is that as store traffic has started to pick up, our digital momentum has not slowed down, so all in all feeling very positive about both channels of growth. Margin has been exceptional, as I said in my opening remarks, up about 900 basis points in merchandise margin to Q1. We expect Q2 to be about the same level of increase year-over-year. In all major categories, margin growth is outpacing sales growth, so feeling good across the board. As it relates to the very back half of the year, don’t know. We could expect to see some cost pressure, we might expect to see some impact from COVID in our base of supply, so we’re deliberating not giving guidance on the back half of the year at this time, but what we can see for Q2 looks absolutely fine.

[Matthew Boss:]

Great color, thank you.

[Amie Preston:]

Thanks Matt. Next question?

[Operator:]

Our next question comes from Simeon Siegel with BMO Capital Markets. Your line is open.

[Simeon Siegel:]

Thanks, good morning everyone. Congrats on the ongoing strength, and Stuart, I’ll echo the well deserved congrats and best wishes on the next chapter. The flow-through on the stimulus sales was really impressive for both brands, so interestingly higher at Victoria’s. Can you speak to the right way to think about incremental margins at this point, maybe what in that math is one-time versus more structural and a sustainable reset? Then the VS International operating loss shifting to breakeven was great to see - congrats on those initiatives. How are you thinking about international profitability or pressure going forward? Thanks.

[Amie Preston:]

Thanks Simeon. Martin?

[Martin Waters:]

Yes, the stimulus effect was about one-third of our beat to the guidance that we gave at the beginning of the quarter, so we think about where we were at the beginning of the quarter and where we ended up, about a third of that beat was due to stimulus, we estimate. We have pretty good techniques for our estimation, so we feel pretty confident in that number. As it relates to the international business, the pick-up is primarily due to two very significant areas of restructure that we put in place during the back half of the year and the early part of 2021, and these are obviously in the U.K. and China. In both cases, we have exited the losses in those businesses through some very, very good work to put them on a much more sound footing going forward, so with those losses behind us, we can really focus on the best bits of the business, which are in two areas

[Amie Preston:]

Thanks Martin. Thanks Simeon. Next question, please.

[Operator:]

The next question comes from Roxanne Myers with MKM Partners. Your line is open.

[Roxanne Myers:]

Great, thanks. Let me add my congratulations for a phenomenal quarter and dramatic improvement over the past year. My question is for both Andrew and Martin. I’m just wondering, any initiatives or general updates around customer loyalty and loyalty programs that you can share for each brand? I know that for BBW, it’s something that you were testing. Probably the past year hasn’t been a great environment to expand that, but curious to get an update as you’re thinking about generating that customer loyalty program, and then any stats that you can share about new customer acquisition over the past year, which I’m assuming was fairly robust online. Thanks a lot.

[Amie Preston:]

Thanks Roxanne. Andrew, you want to start?

[Andrew Meslow:]

Sure, thanks for the question, Roxanne. I’m actually going to answer the second part of your question first, just to talk about general customer performance and growth, because I think it plays into then our approach on the loyalty program that you were asking about. As a reminder, when we talked about customers through the year in 2020, despite very, very strong customer response and reactivation through the back half of 2020, based on the fact that our stores were essentially closed for 90 days in the first half of 2020, we did actually finish the year in customer count at Bath & Body Works down in the low single digits percentage-wise to last year. What’s great news to be able to report is that tremendously strong performance in Q1 has not only closed that gap, but we’re now running up low single digits on a rolling 12 basis to two years ago, so a very nice turnaround based on strong customer acquisition and customer retention that we saw in really the last three quarters sequentially. As we then think about, to your question, the loyalty program, the loyalty program is one that we have been piloting for the last several years. As a reminder, it’s in just under 300 stores that we’ve been conducting those pilots in, and while we’ve been very pleased with the results in those areas, we have not been all that pleased with the flexibility of our loyalty application, the actual program itself, so as discussed on prior calls, we are in the process of updating that program and that application and we will be rolling it out to additional markets, about another 50 or so stores later this year, and again assuming good response to that, our intent would be to roll it out more fully sometime in 2022. The results that we see with that loyalty program even as it exists today, though, are better retention, obviously, of our customers and better overall responsiveness, both things that we will really be excited to be able to further leverage once we have that program rolled out more fully.

[Amie Preston:]

Thanks Andrew. Martin?

[Martin Waters:]

Yes, we feel very good about where we are in terms of customer loyalty. Our best customers have been responding very well to the changes that we’ve made around the brand, particularly in new categories that we’ve re-entered. In our swim business, we’ve seen particular affinity from our best customers and our most loyal customers, so that’s really gratifying to see. I’m delighted to tell you that after several seasons of decline in the size of our customer file, in the last third of the year we’ve actually seen an increase in our customer file, so that is incredibly encouraging, proof points that our repositioning is working. As you know, I think you know, our loyalty is tied to a credit card, and that’s fine - we enjoy great success and great customer advocacy and communication through that tool, but we are committed to getting into a loyalty program that will not be tied to the credit card. We will have tests in place on that towards the end of this year, early in 2022. Thanks for the question, Roxanne.

[Amie Preston:]

Thanks Roxanne. Next question please?

[Operator:]

Our next question comes from Ike Boruchow with Wells Fargo. Your line is open.

[Lauren Frasch:]

Good morning everyone, this is Lauren Frasch on for Ike. Congratulations on a great quarter. I wanted to dig a bit more into how your thinking has shifted around VS margins, now that you’re managing to a mid-teens target. Could you walk us through how you got to the mid-teens as the appropriate level, and how quickly do you think VS can get there given its current trajectory? As a quick follow-up, VS margins are clearly on a very robust trajectory right now as a result of the changes you’ve made. Is there any reason to expect that margin should not continue to expand relative to 2020 through the remainder of the year? Is there anything in the cost structure that needs to normalize in the second half that might results in margins being flat to maybe down? Thank you very much.

[Amie Preston:]

Thanks Lauren. Martin?

[Martin Waters:]

Yes, so we feel very good about where our merchandise margin rates are. I think you probably have the history, but our OI rate is close to our historical high for a Q1, so operating income at $245 million is about where we were in 2017. Only 2016 was higher at $280 million. The 15.7% that we proved for that quarter, we feel good about that kid of level go forward. We’ve said that we expect to manage the business to a mid-teens operating income - that’s below where we’ve been on the historical high, and that kind of reflects the need for some further investment in the business, where we haven’t made investment in the last few years because times have been tough. We don’t want to over-promise on the margin. We want to give ourselves some room to be able to reinvest in the business, particularly marketing strategies, but also reinvestment in our stores which have been somewhat light in terms of investment over recent years. The good news that I can tell you is that that margin growth is across all categories, and we do expect it to continue into the back half of the year. All of that said, we don’t want to get too fascinated with our merchandise margin rates being at peak highs. We want to be more satisfied with delighting our customers, making sure we’re reinvesting in the brand, and putting our best foot forward for the long term. But absolutely no reason to doubt that we can operate this brand in the mid-teens.

[Amie Preston:]

Thanks Martin. Next question, please.

[Operator:]

Our next question comes from Susan Anderson with B. Riley. Your line is open.

[Susan Anderson:]

Hi, good morning. Nice job on the quarter. I’m curious for the Pink business, did you see at all a pick-up in sales, do you think related to some students returning to the classroom this spring, and then also just curious what your expectations are for back to school or back to college this year. At VS, I’m curious if there’s new plans for expansion of the lounge category and if you expect to continue to grow sport within that again. Thanks.

[Amie Preston:]

Thanks Susan. Martin?

[Martin Waters:]

Yes, I’ll take that one. The Pink business has been terrific, and it particularly--the Pink business particularly accelerated towards the back half of the quarter and is having an excellent May, so super strong performance, really good reaction to the new merchandise that Amy and the team have developed, but also the brand positioning that they are pursuing. I think that that strength is driven more by good fashion, being in good categories and delivering great marketing strategies, rather than a return to campus. Campuses in towns and cities where we see a higher level of return of students, we don’t really see a difference in performance there. The same is true with states where COVID has been relaxed - we’re not really seeing a material difference, so what that tells us the main thing is the main thing in a fashion business, which is having good merchandise and good marketing, so feel great about that. I think if Amy was on the call, she would remind me to point out that the growth has been particularly strong in intimates because that’s our core, so double digit comp same store sales growth in our intimates business. Super strong performance in the logo business, which is particularly encouraging for the health of the brand, and maybe a couple of other snippets would be shorts - it’s a good season for shorts, it’s a good season for tie-dye, it’s a good season for yellow, and we’ve been on all of those trends, so big congrats to the Pink team. As it relates to the Victoria’s business, yes, lounge has been great for us during COVID, and we intend to continue to invest in that category. The merchants in that area have just done a superb job, and we’re starting to get to the point where we’re saying, our stores are too small again because there’s so much good merchandise coming. All of that said, we are a bra business, we are fundamentally a lingerie business. The most important category for us to win in is the bra business, and that has the most attention around here. We’re determined to win back customers in that core category of intimates, and what we’re seeing in terms of results is that that is working. The mantra that I would remind you of, Susan, is grow from the core, most important. Sports bras, we’ve been underweight. It’s a category where we’ve been too light, we haven’t had enough investment, and we will be course correcting that in the back half of the year. Hope that helps.

[Amie Preston:]

Great, thanks Martin. Thanks Susan. Next question?

[Operator:]

Our next question comes from Jenna Giannelli with Goldman Sachs. Your line is open.

[Jenna Giannelli:]

Hi there, thanks for taking my question. Just as a follow-on to the margin question earlier, I’m wondering if you can extrapolate a little bit more on the potential for inflationary and/or supply chain headwinds in the second half that you mentioned in your prepared comments, just a little bit on the magnitude of them, if it’s labor, if it’s distribution, freight, etc., and then really what you feel your strongest levers are to mitigate some of these pressures. Thanks so much.

[Amie Preston:]

Thanks Jenna. We’re going to go to Stuart.

[Stuart Burgdoerfer:]

Just to comment broadly on it, and Andrew and Martin have also mentioned it, there are certainly risks out there and potential pressures, but for the back half of the year, we hadn’t provided guidance, and as we do so, we’ll try to incorporate those views as we move through the year. But hard to quantify at this time, and obviously the businesses are taking steps to mitigate some of the pressure. Thanks.

[Amie Preston:]

Thanks Stuart. Next question, please?

[Operator:]

Our next question comes from Janine Stichter with Jefferies. Your line is open.

[Janine Stichter:]

Hi, good morning, and congrats on the progress. Just had a clarification on the commentary on the quarter-to-date trend. I think you said for both brands, it had been tracking similar to 1Q. Is this similar to the 1Q rate ex-stimulus, and just curious what your expectation is for consumers - have they spent most of their stimulus in your mind, or is there still potentially some benefits that flow into 2Q? Thank you.

[Amie Preston:]

Thanks Janine. Andrew, do you want to start?

[Andrew Meslow:]

Sure. To your point, Janine, on a clarification basis, we would say it’s in line to the stimulus adjusted trend to slightly better, and speaking on behalf of Bath & Body Works, the stimulus benefit that we saw was primarily in March, with a little bit of carryover into April, but really not seeing any lingering stimulus benefit through late April and into May so far.

[Amie Preston:]

Thanks. Martin?

[Martin Waters:]

Yes, kind of same answer to Andrew, the clarification point being that May has been similar to the back half of Q1, which was better than the beginning half of Q1, so that’s good. And yes, we think that stimulus is behind us and so we’re not planning any benefit from that go forward.

[Janine Stichter:]

Thanks very much.

[Amie Preston:]

Thank you. We’ll take two more questions. We have to end a little early today to get to our annual meeting, so two more, please.

[Operator:]

Our next question comes from Marni Shapiro with Retail Tracker. Your line is open.

[Marni Shapiro:]

Hey guys, congratulations. So exciting. Welcome back, I guess in a way. Martin, if you could just talk a little bit more high level about, you know, you’ve been with this company a long time, with Victoria’s Secret a very long time. You’ve seen different iterations of the brand. Could you just talk, I guess high level about the point of view you see the brand taking going forward? They’ve had the whole sexy bombshell thing, the everyday thing, the active thing. Just in general, I guess big categories and point of view that you take the brand taking going forward.

[Martin Waters:]

Yes brilliant, thanks Marni. I could take up the rest of the call with this one. This is my favourite subject.

[Marni Shapiro:]

Go ahead, go ahead!

[Martin Waters:]

I’ll try and be brief. You know, it starts with the notion of redefining our purpose. We have a clear reason why we exist at Victoria’s now, and that is to inspire women around the world with products and experiences that uplift them and champion them and support their journey. It’s their narrative, not ours, and so how will we accomplish that? Well, we think about it in terms of creating lifelong relationships with women by reflecting what’s important to them, what journey they’re on, what stage in their life they’re at, and perhaps more importantly creating positive change for women through the power of our products and our platform, and also our advocacy. Advocacy is a big, big word for us going forward, and I have a bold ambition that Victoria’s should be the world’s biggest and best advocate for women. That’s an incredibly powerful vision and mission for us to aim towards, and it’s energizing for all of our people. It does reflect a very significant turnaround from where we’ve been, where we’re moving from what men want to what women want, we’re moving from sexy for a few to sexy for all, we’re moving from a look to a feeling. It’s about including most women rather than excluding most women, and being grounded in real life rather than mostly unattainable. I couldn’t underscore how significant this turnaround and this repositioning is. It’s a very dramatic change for us, and we have significant proof points already at this early stage in our journey that this is what the customer wants from us, so expect more. Thanks Marni.

[Marni Shapiro:]

I am so excited about this. Congratulations and best of luck. It’s brilliant and overdue.

[Amie Preston:]

Thanks Marni. I’m tempted to end right there, but we said one more, so we’ll--

[Martin Waters:]

Can I talk some more? I can do so.

[Amie Preston:]

We’ll take one more question, please. Thanks.

[Operator:]

Thank you. The final question comes from William Reuter with Bank of America. Your line is open.

[William Reuter:]

Hi, I’ll make it quick. The first is your leverage target had been 2.5 to 3 times. Is that still what you think with regard to the legacy LB or the BBW business? Then you have $2.8 billion of cash, which is a ton. Do you have thoughts on what you’re going to do with that?

[Amie Preston:]

Thanks Bill. Stuart?

[Stuart Burgdoerfer:]

Bill, on capital structure, a few points to register. The first is the company’s in great shape. We ended the quarter with $2.8 billion of cash and the maturity profile of our debt is very well spaced out with not a lot of near term maturities, so I really on the subject want to start there. We’re in a very good place. The spin decision was made about 10 days ago. We’re working with JP Morgan and Goldman Sachs on the subject you asked about. VS is going to have some debt. The proceeds of that debt will be dividended to LB. We want the leverage for both VS and BBW to be well balanced and to compare appropriately to their respective peers, and it’s a work in process. It’s all work that the board will review and approve as we move through the next month or two. You asked a specific question about BBW go forward leverage. The range that you mentioned seems about right, but again it’s preliminary. We’ve got a little bit more work to do. We’re going to strike the right balance, and more discussion to come with the board. Thank you Bill.

[Amie Preston:]

Thanks. That concludes our call this morning, and thank you for your interest in L Brands. Bye.

[Operator:]

Thank you. That concludes today’s conference. You may all disconnect at this time.