LandBridge Company LLC
Q1 2019 Earnings Call Transcript

Published: 23 May 2019

[Operator:]

Good morning. My name is Vitania, and I will be your conference operator today. At this time, I would like to welcome everyone to the L Brands' First Quarter 2019 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] I will now turn the call over to Ms. Amie Preston, Chief Investor Relations Officer of L Brands. You may begin.

[Amie Preston:]

Thank you. Good morning, everyone and welcome to L Brands' first quarter earnings conference call for the period ending Saturday, May 4, 2019. 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, additional commentary, and our earnings presentation are available on our website, lb.com. Stuart Burgdoerfer, EVP and CFO and I will handle the call today. Thanks, and now I'll turn it over to Stuart.

[Stuart Burgdoerfer:]

Thanks, Amie, and good morning, everyone. Our first quarter earnings per share of $0.14 were above our initial guidance of about breakeven, principally driven by a strong performance at Bath & Body Works and some favorability in income taxes. Performance at Victoria’s Secret Lingerie, PINK, Victoria’s Secret Beauty, and International were largely in line with our forecast. Our performance continues to be mixed. Substantial growth in operating income at Bath & Body Works and an improvement in the other segment as a result of the sale of La Senza and the closure of Henri Bendel was offset by a decline at Victoria’s Secret. Turning to our outlook for the remainder of 2019. At Bath & Body Works and aligned, experienced leadership team, and strong customer response to our merchandise assortments are contributing to another solid year. We also remain highly focused on improving performance in the Victoria's Secret and PINK businesses. John Mehas and Amy Hauk, CEOs at Victoria's Secret Lingerie and PINK respectively are focused on getting closer to our customers and improving our merchandise assortments. We look forward to our assortments benefiting from their input beginning in the fall season and our earnings guidance assumes gradual improvement in the Victoria's Secret segment performance as we move through the remainder of 2019. You'll hear more from John and Amy as well as other business leaders at our Investor Day which is scheduled for September 10. Thanks and over to you Amy.

[Amie Preston:]

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

[Operator:]

[Operator Instructions] Your first question comes from the line of Paul Trussell with Deutsche Bank.

[Paul Trussell:]

Hey, good morning. Could we just touch on Victoria's Secret in terms of kind of maybe where you saw some green shoots in the first quarter, and just give us a better sense of what you expect in the second quarter, and clearly the guidance does still suggest some real improvement in the second half?

[Stuart Burgdoerfer:]

Sure Paul. So in terms of where we see strong consumer response and what we're focused on is where we're delivering significant fashion and elevation in the assortment, and it's a big focus for us, and that's where we're seeing the strongest consumer response. The Incredible Bra launch did well, but as a general theme it's where we have fashion that resonates with the consumer and again John is particularly focused on that and jumped right in. Frankly, he has been with our business now 13 weeks and hit the ground running in a very good and intense way in the business and is very busy at work to impact fall assortments. But again, for lingerie, it's about delivering compelling fashion in the major categories of bras, panties, and sleep and loungewear. In the PINK business, strong performance in intimates and a good volume result in sport bras, particularly in again the intimate side of the business with very strong value for the consumer, and that business PINK is focused on really continuing to advance the assortment in bras and panties and is doing important work to reposition the apparel assortments as well but has a real advantage in the bra and panties side of the business. And then for Victoria's Secret Beauty, this business continues to do well and where the business had good fashion in the better priced, higher priced fragrance business got strong consumer response. So as has been the case for us for a long, long time and the same idea applies to Bath & Body Works and in our history, when we're delivering strong fashion, differentiated merchandise with emotional content, the consumer responds in a good way and we get healthy margins, we get unit volume, we get AUR opportunity, and we get the results. So that's what the Victoria's leaders, John, Amy, and Greg are focused on, and frankly the same for the team at Bath & Body Works. When we do it well, we get paid and when we're after market or off the mark or our assortments get too basic that's when we tend to have trouble. Thanks Paul.

[Amie Preston:]

Thanks Paul. Next question please?

[Operator:]

Your next question comes from the line of Ike Boruchow with Wells Fargo.

[Ike Boruchow:]

Hey, good morning everyone. Congrats on the stability. I guess, Stuart, just a high level question for you, there was some news that kind of came out, I think a week or two ago about potentially re-evaluating fashion show and being on TV. I guess when you think about VS right now, how much of the changes should be more strategic in terms of merchandising versus kind of more substantial changes meaning changing the marketing approach, evolving the brand, may be looking at the international business and owned versus partner businesses in your flagship stores? I'm just trying to understand what could be - your Analyst Day has been announced for September, what could we possibly looking forward to hear from you guys then?

[Stuart Burgdoerfer:]

Yes, so thanks Ike for the question and your research on the business. We've said pretty consistently now for probably around six or nine months, certainly six months that everything is on the table with respect to the valuation of the Victoria's Secret business, and that wasn't just a throwaway phrase that was [indiscernible]. We are taking a fresh hard look at all aspects of the business and that's not a one-time exercise. It will be an ongoing exercise and starts from the place that - the ultimate profit results, economic results of the business is not consistent with our expectations or the potential of the business, and thus you get into a mindset, we're in a mindset of truly looking at everything, and again not a one-time exercise. As Amy and John, particularly have come into the business, but Greg's done the same thing. It really does start, and it's not limited to, but it starts with fundamentally the merchandise that you're selling. And as I mentioned in the quick comment on the first question on this call, Amy is very intensely focused on understanding that target customer and reworking the assortments at PINK and John again now 13 weeks in has truly hit the ground running and is bringing to our situation a lot of great experience that he had in his prior retail life. And so, we're very focused obviously on the merchandise, and as registered in our pre-circulated comments that impact showing up in the most clear way beginning in the fall season and it will get more significant as we move through the fall season, but that is tangible and real. From that, we're taking a hard look at lots of other stuff. We closed more stores or announced plans to close more stores, have closed more stores to rightsize square footage in 2019 than we had historically as an example of taking up a hard, fresh look at things. And by the way the business also continues to invest in real estate and open stores where it makes sense, particularly at Bath & Body Works, but also internationally. As it relates to marketing, Ike in the fashion show at the end of the day as part of that fresh hard review of everything we're taking a hard look at the best ways to reinforce the equities and the strengths of the Victoria's business and make appropriate adjustment to the positioning of the business and then in concert with the changes in merchandise how do we most effectively market those changes. And that work as you would appreciate is in process. When we have specific things to share publicly, we will, in some cases we'll do that right as consumers are experiencing it, competitive reasons that you would understand, but there's active work going on with respect to how the business is marketed, as indicated by our announcement recently about reevaluation of the fashion show. So everything is on the table. Certainly you mentioned international and how we're looking at that business. There are no constraints, only time frame. You would understand that in that evaluation, one has to think about lease terms and lease flexibility and those kinds of things, but we're in a position where everything is on the table. Les Wexner has always led with that mindset, that it is always about looking forward and about change, and on an overall basis, certainly he's navigated and led that well over a long, long time in specialty retail, and we're very focused on it as a management team. Thanks Ike.

[Amie Preston:]

Thanks Ike. Next question please?

[Operator:]

Your next question comes from the line of Susan Anderson with B. Riley FBR.

[Susan Anderson:]

Hi, good morning. Thanks for taking my questions. I was wondering if you could maybe give some more color on the gross margin as we go throughout the year, I know you are expecting growth in merch down for the year, but I guess are you expecting any improvement at all as we go into the back half and some of the new product flows in and then just the drivers?

[Stuart Burgdoerfer:]

Hi Susan, good morning. Thanks for the question. The simplest way to answer your question is we are expecting improvement in merchandise margin. You will remember as we report, gross margin includes buying and occupancy costs, but we would expect, I trust you are asking about the Victoria's business, but for Lingerie, PINK, and Beauty, we would expect an improvement in merchandise margin, rate, and a dollar result as we move through the year sequentially. That was our view going into the year, it remains our view, and it's a function of the work that John, Amy, and Greg continue to do on the merchandise assortment. So, that is our expectation that we’ll see sequential improvement as we move through the quarter. Thanks.

[Amie Preston:]

Thanks. Next question please?

[Operator:]

Your next question comes from the line of Mark Altschwager with Robert W. Baird.

[Mark Altschwager:]

Great, good morning. Thanks for taking my question. If I could just follow-up there Stuart on the margin front, so there was a comment in the prepared remarks about the VS Q1 operating margin still benefiting from last year's credit and sourcing actions. So, and then you're going to begin to lap that I think going through the remainder of the year. So, a number of crosscurrents here, you mentioned you would expect merchandise margin to improve throughout the year, but as we lap some of those other benefits, and then it sounds like maybe we're baking in some incremental tariff headwinds, just how should we think about the EBIT margin rate progression through the year for Victoria's Secret relative to that 300 basis point decline in Q1? And then kind of as a follow-up clearly some greater divergence this year with the investment plans at Victoria's Secret versus BBW. I was hoping you could help us understand the run rate of buying and occupancy growth at each of these concepts so we can have a better understanding of the leverage points today?

[Stuart Burgdoerfer:]

Yes, so thanks Mark. On the progression of margin rates and EBIT rates as we move through the year, while there are puts and takes including some benefit that we got from our proprietary credit card and some sourcing related benefits that we got last year and into the first quarter this year, despite those puts and takes, we would expect progression and improvement sequentially in margin rates and the operating income result in the Victoria's business as we move through the year. Again, even despite the callouts that we had in the prepared remarks and including the pressure from the list three tariff move from 10% to 25%. With respect to buying and occupancy, dollar increases or percent growth and sales growth needed to drive leverage in the Bath & Body business driven by the ongoing and we think a very healthy and appropriate investment in store remodels and some pressure related to continued mix shift towards direct, again Bath & Body is having the great outcome of growing sales in stores and online, but online is growing at a faster rate in the P&L architecture that penetration growth for direct in BBW in addition to the pressure related to real estate, results in a sales growth to leverage P&L in the high single or low double range depending upon the time period, again driven by the two factors I just mentioned. The direct business as an aside is a very healthy profit business for BBW and VS for that matter, but that growth rate outstripping the total growth rate drives some geography change in that P&L. And then for Victoria's driven by the lack of growth in square footage and our pull back on investment, the breakpoint or the leverage point for sales at VS is flat or even a little less than flat in 2019. Thanks.

[Amie Preston:]

Thanks. Next question please?

[Operator:]

Your question comes from the line of Jamie Merriman with Bernstein.

[Jamie Merriman:]

Thanks, very much. The first question is just on digital at Victoria's Secret, I think and you talked in the past and in the release today about the set up investment and I think there's still a relaunch coming this year, can you just confirm that and talk about what that will encompass and when it is coming, that will be great?

[Stuart Burgdoerfer:]

Yes, so we went live in the first quarter with a new technology platform for VictoriasSecret.com and that was a result of more than a year's work and a substantial IT project to re-platform that website. So that is a new base platform and was a very significant technology project and I'm knocking on wood or hard surface anyway, but it is up and running and there hasn't been any significant adverse sort of startup issues related to that and that's a big deal. And that new platform will enable us to do a lot of things now. We need to make further investment to do those things, such as buy online pick up in store, but another key input to achieving that consumer outcome will be the RFID project that's underway for Victoria's Secret, and it's critical that we have very good information about our specific inventories and we have broad assortments at Victoria's particularly in the bra category and so we want to make sure that we have accurate information and are at this RFID project and mentioning will help enable a buy online pick up in store project that will likely get out in 2020 after we do the RFID work this year. We are making further investments in the digital business beyond the platform including rolling that new platform to the international side of our business and continue to enhance the consumer experience. And then we are also making significant investment in digital fulfillment capacity for Victoria's and while outsourced we're adding a lot of capacity for the Bath & Body side of the business as well given the growth and further potential in that business. So a lot going on, a lot of investment happening related to the online business, which again as you know, is now running at 2.4 billion to 2.5 billion for L Brands growing at a very healthy rate on an overall basis and highly profitable. Thank you.

[Jamie Merriman:]

Thanks.

[Amie Preston:]

Thanks Jamie. Next question please?

[Operator:]

Your question comes from the line of Jay Sole with UBS.

[Jay Sole:]

Great, thanks so much. Stuart, you know what, just asking another question just about margins at Victoria's Secret, from a big picture perspective, the company has done a great job cutting costs, imagine sends a heavy bundle, but you know the Victoria's Secret North America is still doing over 7 billion in sales like but the obviously the margins have come down, what's the opportunity if you want to look at more cost cuts, not necessarily closing stores, but just more efficiencies to overall improve the margin, what might those be? And then also can you just talk about the path to profitability in China? You made some comments in the prepared remarks about that business getting a little bit better, can you just tell us where it stands today and what you see going forward?

[Stuart Burgdoerfer:]

Yes, so with respect to the Victoria's business and managing the expense side of the business, just working down the P&L and talking about the biggest categories of expense, again beyond getting margin rates where they had been, again the biggest cause of decline, profit rate and profit dollar decline at Victoria's has been erosion of margin rates, merchandise margin rates to be specific, and that's about pricing and promotion, and having merchandise with emotional content. But that wasn't your question, you are asking about expense side of the business, so moving down the P&L the biggest variable expense we have is store payroll and we believe that it's important to have appropriate coverage of square footage and of traffic volumes to drive the selling opportunity that exists in our stores. We also believe it's important to pay our associates, we have upstanding teams at a competitive level to ensure that we can attract and retain appropriately skilled store associates and we've gotten a lot of them, given the selling opportunity in the business, but so, with respect to store payroll, not a lot of opportunity on a rate basis for reduction. With respect to occupancy costs, obviously the action that one can take there are two major things that one can do beyond driving sales volume. One is to adjust investment in remodel activity or new stores and we've done that. We’ve dramatically reduced almost to nil the investment levels at Victoria's Secret given the current state of performance. And as leases roll off or where there's opportunity to close stores and again we closed more stores this year than we had and probably the factor of between 2x and 3 x we had done previously, so that’s the other action that one can take. And then there are two other big categories of expense to consider and we have, one is the marketing investment in the business to drive sales. Generally people invest in marketing because they believe it does drive topline growth which is obviously important to any business. But we have heavily scrutinized the marketing spend at Victoria's and over the last 9 to 12 months particularly, we’ve taken meaningful dollars out of the marketing spend at Victoria's. And then lastly is the home office spending in the business and in connection with all the changes that were made in the business in 2016, the business let go in round numbers about 300 people and made a substantial reduction in the home office workforce at that time. And we've tried to manage any growth since that time. But all the expenses are being evaluated, they have been evaluated, and we’ve taken significant action on those expenses at Victoria’s. But the biggest opportunity is about topline growth at a healthy margin rate and then we would get reasonable leverage on the expense lines. With respect to China, in terms of improving the profitability there, it will be volume in existing stores, volume related to new store activity which we have planned in 2019, and then a continued focus on consistent with your earlier question a continued focus on the expense levels in that business to make sure that we’re getting appropriate return on the various forms of expense structure in the China business. But it is largely a volume story in China to get to the profit we expect. Thanks.

[Amie Preston:]

Thanks Jay. Next question please?

[Operator:]

Your next question comes from the line of Kimberly Greenberger with Morgan Stanley.

[Kimberly Greenberger:]

Great, thank you so much. Good morning. Stuart, my question is on PINK. I'm wondering if you could just remind us what the mix is between intimate apparel and loungewear at PINK, is it 50-50, 60-40? And then, are there any initial thoughts that you can share from Amy about what is not working in apparel? And then with regard to the swim elimination, I think there was a 5% hit here in the first quarter, how should we think about the elimination of when in the peak business that a reintroduction at the Victoria’s Secret Lingerie business and is there any thought to bring swim back ? Thanks.

[Stuart Burgdoerfer:]

Yes, thanks Kimberly. So, the first question was about the mix - merchandise mix between intimates and apparel and at present it’s about 50-50, so bras and panties together are about 50% and the balance of the business largely apparel about 50%. As I mentioned in an earlier comment, we believe we have our greatest competitive advantage and strong attributes around customer or consumer loyalty in the intimate apparel business and so it's our intention Amy's intention, Les' intention, the team's intention to grow the intimate business faster than the apparel business. So I would expect that that mix of about 50-50 will skew to intimates being obviously greater than 50% over the next year or two, that's our focus for the reasons I mentioned. With respect to the apparel part of the business and Amy will comment on all of this on September 10, when we have our time together. She's relooking at all of it, in terms of price points, good-better-best opportunities, fabric and fabrication, surface design, various logo treatments, et cetera, she's looking at all of it, testing a lot of things, seeing some positive consumer reaction to some of the things that have been tested and as we've mentioned consistently and Kimberly you are familiar with one of the additional advantages that PINK has in its operating model it’s business model are short lead times and a mindset around speed and agility so they are chasing hard. I’m not going to sit here and tell you that she's got all the answers because she doesn’t, but she’s working and seeing some working very actively and applying the BBW and other retail playbook to this business. And we’re encouraged based on what we’re seeing, but the result of her work will show up most in the fall season. You know that we've got campus reps, that we have very active dialogue with, and she’s certainly making good use of that resource and ensuring that that resource is truly telling us what we need to hear, and I think they are. So, a lot going on and we’re optimistic that certainly as we move through the year and particularly in the fall season that it will stabilize and then get back to positive growth sales and margin in PINK.

[Amie Preston:]

Swim?

[Stuart Burgdoerfer:]

Oh, thank you. Swim, you mentioned that we’ve gotten back into that category in large part due to third-party brands and with respect to PINK, I would say anything's possible Kimberly. There is some what we call Gym-to-Swim offering in the assortment now, where at leisure tops and bottoms that would be suitable in terms of their style and so on would be suitable for use in that occasion or as part of her life in that way. They are offered today, it's a small offering, but there's an open-mindedness to it, but it won't be a key thing for the balance of this year but we'll see how it progresses as we move into the following year. Thanks.

[Amie Preston:]

Thanks Kimberly. Next question please?

[Operator:]

Your question comes from the line of Oliver Chen with Cowen and Company.

[Oliver Chen:]

Hi, thank you. We had questions related to the innovation that you see ahead at VS. Some of the survey work we've done around customers does point to fit as well as comfort being issues of the customer segmentation across the store, I would love your thoughts on that and what you think may happen as you continue to evolve the brand and add more emotional content?

[Stuart Burgdoerfer:]

Well the first thought I have Oliver and thanks for the question, and I read your report with interest. The first thing I would say is that the subjects that you researched and wrote about are, - is what John and his team are most focused on, which is how to evolve the assortment to ensure that the merchandise offering best addresses her needs. As you know from all the consumer work you do, sometimes she's able to clearly express what she’s looking for and there other times where you know, a leading consumer brand and we have are examples of this is able to drive the market through our own innovation and again that's what you're asking about. We believe that there is a very significant opportunity with respect to fashion, with respect to an elevation of the merchandise, with respect to not selling as much what we would call commodity or commonly available merchandise in the bra, panty and sleep and loungewear categories and based on early work, but substantial work, John is on it and has a very strong point of view that makes a lot of intuitive sense. We've done a lot of consumer research over the years as you would expect us to. It’s inherent in running a business and certainly the attributes around comfort and other things that you mentioned in your report we understand well, and believe that we have leadership positions in many of those attributes or those characteristics that consumers are looking for. But John is on it, he brings good experience, his team is on it with him, he's leading, he’s got a clear point of view and substantial changes to the assortment are coming. You'll see that beginning in August, John will be with investors, with the balance of the team on the 10 September to more fully articulate his assessment and his game plan. And we've got strong reasons for optimism about the progression in 2019 for the Lingerie business. Thank you, Oliver.

[Oliver Chen:]

Thank you. Stuart, there was one other follow-up on the store and customer feedback about customer service as well as thinking about navigation in the store. I know you've done a lot of work in the past with conversion as well as testing, optimizing service in the past, but if you could brief us on that opportunity it seems like an important opportunity going forward as well. Thanks, best regards.

[Stuart Burgdoerfer:]

Thank you, Oliver. So, we agree that there is opportunity to make the store more easily understood and navigated, and to further strengthen the interactions between our associates and customers. And as part of what John and the team and Amy and her team are focused on it includes, Oliver, more easily understood and navigated store and continued work in terms of the interactions between our sales associates and our customers. Thank you.

[Amie Preston:]

Thanks guys. We’ve got about 10 minutes left and a lot of people trying to ask questions, so please one question. Next question please?

[Operator:]

Your question comes from the line of Alexandra Walvis with Goldman Sachs.

[Alexandra Walvis:]

Good morning, thanks for taking the question. I know we had brief comments earlier on the swim business in response to Kimberly’s question. I wonder if you could reflect on the swim launch at Victoria's Secret, I’d love to hear your thoughts on that, you know, what's the impacts it's having on the business on e-commerce traffic, what’s the customer response team and how are you feeling about the level of fashion price points and so forth, I mean should we expect any changes there going forward?

[Stuart Burgdoerfer:]

Sure, thanks. So, as we have communicated, the reentry into swim was an initial test. The decision was made to do that late last year. The financial outcome today and expected for the balance of the season is in line with our expectations, so it’s doing well and meeting our expectation. It's not having a material impact on the overall business because it was a reentry and a test. What we have learned despite, you know, what may be out there on the Internet is that there has been strong positive reaction to the assortment generally including at higher price points and I realized there's chatter out there with commentary about the good-better-best pricing, but what I’m conveying in response to your question is we've had a strong positive reaction to all of the price points we've offered in a good way. Certainly, there’s some learning that that we’re achieving with the test, but again, overall, it's gone well. It’s meeting our expectations. The business will get substantially larger a year from now. It remains focused as an online business, but one of the very positive aspects of the test has been the positive consumer response to the swim offering at higher price points in addition to the more moderate price points that we had historically been in. So that's where we stand on it and we’re encouraged about the test and we’ll be expanding our business there over the next several years. Thank you.

[Amie Preston:]

Thanks. Next question please?

[Operator:]

Your next question comes from the line of Janet Kloppenburg with JJK research.

[Janet Kloppenburg:]

Good morning Amie, good morning Stuart. I was wondering if you could talk a little bit about John Mehas’ feelings about the legacy bra platforms of Victoria’s Secret. They seemed that that older products seems to be holding back a rebound in the lingerie category and I'm focused on what you said about fashion newness and when it's right they’ll go for it, and I'm wondering if we’ll see an evolution in the legacy platforms or if they'll fade away and be replaced with greater fashion platforms? Thank you.

[Stuart Burgdoerfer:]

Yes, Thank you, Janet, thanks for the question. And you’ve followed retail a long, long time, I've been involved in it for a while, our company's been involved in it for a long, long time. This business fundamentally is about fashion. We’re not about selling basic commodity product year after, year after, year after year, that's not the business that we’re in. Others are in that business and that’s fine and they have operating models and all kinds of things that make that work for them. But that's not what our company has done for more than 55 years. We’re about fashion and when we lack fashion, lack of newness, lack innovation where it’s not interesting the result becomes apparent. And so, in answer to your question about, is John focused on that or what's his assessment, again he’ll more, he’ll, for himself, articulate all that in early September. But our observation, his observation is that there is a substantial opportunity to remix the assortment and that's not just words on a PowerPoint charter, my comment on an earnings call, but he’s doing real work on that with the team and it’s substantial work, and he’s working with our sourcing partners and our vendor partners which we have strong relationship and good capability and there's a lot happening. Will it all be perfect and all work right out of the box? I'm sure it won't, but he's making substantial change, we believe it's positive change that makes sense and that the specifics of that will become apparent as we move through the fall season and again he'll share his thinking in September with you and in the investment community. So, but no substantial changes of substantial opportunity for more fashion in the business. Thank you.

[Amie Preston:]

Thanks. Let’s try to get two more in. Next question?

[Operator:]

Your question comes from the line of Paul Lejuez with Citi Research.

[Kelly Crago:]

Hi, this is Kelly Crago on for Paul. You’ve talked about substantial changes coming in August on the product side of VS and it sounds like John has already made some progress, does that include any changes on the marketing side as well? And then in swim you also mentioned that you’ve got some successful third-party brands in swimwear, is there any opportunity to expand partnerships with the third-party brands within the lingerie and assortment? Thanks.

[Stuart Burgdoerfer:]

So, cutting to the chase, Kelly will there be any changes in marketing related in concert with the change in the merchandise assortment and the very simple answer to that question is, yes. And are we going to get specific about that right now? No. Do we have it all figured out at this very moment? No. Is it being worked on? Yes, very actively, by the right folks and there will be a change coming. So that's, you know, we’re encouraged by that and excited about that. And so, you know, there’s real opportunity not only in changing the merchandise assortments themselves but how we communicate those changes and the nature of those items to our consumer. So we’re enthused about that and there is active work happening in that space. With respect to the potential for additional or different third-party brands in the swim business, absolutely. We've been pleased, as I mentioned in the prior commentary, been pleased with the overall result, but will continue to look at our offering in swim including the offerings from various third-party brands and I'm confident that there’ll be a change there and that's not a negative comment about who we’re doing business with today. We’ve been again pleased on an overall basis, but again like with anything you want to continue to evolve it, advance it, change it and I'm sure it will be ongoing change in the lineup if you will of third-party brands. With respect to third-party lingerie also we've done some tests. We believe there’s some potential there in our business through collaborations of various types and we’re actively working in that space as well, with respect to third-party lingerie active work happening there as well. Thank you.

[Amie Preston:]

Thanks Kelly. Last question please?

[Operator:]

Your question comes from the line of Kate Fitzsimons with RBC Capital Markets.

[Kate Fitzsimons:]

Yes, hi. Good morning and thanks for sneaking me in. I guess my question is on BBW. What are some trends in the business that is getting the team excited that they can maintain the momentum for the remainder of 2019 and saw that the inventory investment is coming for the back half, just what’s the view on balancing the top and bottom line as you guys start introducing more units into the system? Thanks very much.

[Stuart Burgdoerfer:]

What’s got the Bath & Body Works team the most excited is that they probably three or four things. One, they've got strong growth at healthy margins in all of their major books of business. So that's really good, you know, the metaphor of firing on all cylinders, they are in terms of the home fragrance business, the hand soap business and the body care business. So that's got them excited. What leads to that is the regular introduction of newness and fashion in those categories. If we take some examples, recent example, the launch of Gangnam [ph] in their body care business, in fragrance categories has had a very strong positive consumer response. It's sophisticated. It's elevated. And their customer and new customers both have responded very well to it. So what's got them excited is and they don't – they are not – they don’t bat a 1000%, they don’t get it right every time. But their major books of business are performing well and where they've introduced compelling new fashion and newness in their key items, key categories they've gotten a strong consumer response. So that's got them excited and they leverage very fast supply chain to manage the risk of that. They do a good job of it. With respect to inventory and we commented about inventories - some inventory investment at Bath & Body Works, obviously the topline trend in the business is very good, but we missed some business in 2018 because we got very lean on inventory, and so the last thing you want to do is literally not be able to fulfill your sales potential because you got too lean. So learning from that and doing it in a balanced way we're making a little bit more investment ahead of key holiday periods to ensure that we've got the appropriate in-stock positions to maximize the business. So that's what's going on. That team has managed inventory in an extraordinary way over the last 10 years, improving churn to beyond four times a year and driving strong sales and margin result consumer experience as part of that. And so, our confidence level in that team working with our vendor partners to manage the supply chain inventory flow all of that is very, very high based on a lot of strong results over the years, so not concerned about them. Thank you.

[Amie Preston:]

Thanks. And thanks everyone for joining us this morning. I hope everybody have a happy Memorial Day weekend. Bye.

[Operator:]

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