LandBridge Company LLC
Q4 2015 Earnings Call Transcript

Published: 25 Feb 2016

[Operator:]

Good morning. My name is Shawn and I will be your conference operator today. At this time, I would like to welcome everyone to the L Brands Fourth Quarter 2015 Earnings Call. I will now turn the call over to Ms. Amie Preston, Chief Investor Relations Officer for L Brands. Please go ahead.

[Amie Preston:]

Thank you. Good morning, everyone, and welcome to L Brands fourth quarter earnings conference call for the period ending Saturday, January 30, 2016. 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 fourth quarter earnings release and related financial information including any non-GAAP or adjusted financial reconciliation tables are available on our website, lb.com. Also available on our website is an investor presentation, which we will be referring to during this call. The call is being taped and can be replayed by dialing 1-866-NEWSLTD. You can also listen to an audio replay from our website. Stuart Burgdoerfer, EVP and CFO; Nick Coe, CEO, Bath & Body Works; and Martin Waters, President of International are all joining us today. After our prepared comments, we will be available to take your questions for as long as time permits. So that we can speak with as many callers as possible, please limit yourself to one question. All results that we discuss on the call today are adjusted results and exclude the first quarter 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.

[Stuart B. Burgdoerfer:]

Thanks, Amie, and good morning, everyone. In an environment where a lot of retailers struggled, we delivered a record year and fourth quarter across all key metrics

[Nicholas P. M. Coe:]

Thanks, Stuart, and good morning, everyone. At Bath & Body Works, we were pleased with our record results during the quarter, building on record fourth quarter last year. We were able to drive solid growth in sales, while improving margin rates and managing inventory levels down. Total sales for the quarter were $1.5 billion, up 8% or $116 million to last year. Comps increased 6% and our direct channel sales grew by 24%. Sales were strong across the quarter and we were able to drive growth in each of our three key businesses

[Martin Waters:]

Thanks, Nick, and good morning, everyone. We continue to be very confident about our opportunity for growth internationally. Our brands are well received wherever we open around the world and our execution has been excellent. Our foundation is very solid. We saw strong growth in retail sales on a constant currency basis across all of our formats in the fourth quarter. However, not all of this growth translated into recognized revenue. Fourth quarter recognized revenue in the international segment increased by 6% and operating income declined by $1.4 million to $28 million. Foreign currency had about a five-point impact on our recorded revenue growth and about a $3 million negative impact to operating income. We had very solid growth in both recognized revenue and operating income in our company owned stores in the UK, in our franchise or assortment stores and in our Bath & Body Works stores. However, the VSBA business experienced a significant decline in both revenue and operating income in the fourth quarter. This decline was primarily the result of foreign currency translation, softness in travel retail and tourism generally and a decline in shipments of Beauty products in anticipation of the new Victoria's Secret Fantasies collection being launched in the spring. In the full year 2015, the international segment revenue increased by 15% to $385.2 million and operating income increased by 13% to $87.9 million. FX negatively impacted 2015 operating income by about $15 million. So absent the FX impact, operating income would have increased 32% and the rate would have increased by 200 basis points to 25.2%. We opened 144 new stores in 2015 to end the year with 531 stores in the international segment, and we plan to open about 175 stores in 2016. At Victoria's Secret International, we're pleased with performance of our full assortment stores. Our London flagship store on Bond Street, as well as our 13 mall stores are operating very well and will open another five stores in the UK this year. In the Middle East, we now have 16 Victoria's Secret full assortment stores and three PINK stores opened under our partnership with Alshaya. These stores continue to do well, and we will open another 12 or so full assortment stores this year including in new geographies such as China, Mexico, Singapore and earlier this month, in Russia. We'll also open about five more PINK stores. In the VSBA business, we ended the year with 373 locations, about a third of which are in airports. We'll open another 90 or so across the globe in 2016. In Bath & Body Works, we now have 125 BBW stores under our franchise partnerships, and we continue to be very pleased with performance of these stores and expect to open another 65 or so BBW stores in the year ahead. So in summary, despite headwinds from foreign exchange, we made significant progress internationally in 2015 and we remain focused on the fundamentals which is great execution of our brands wherever we go.

[Amie Preston:]

Thanks, Martin. That concludes our prepared comments, and at this time, we would be happy to take your questions. As a reminder, so that we can get to as many of you as possible, please limit yourself to one question.

[Operator:]

And your first question comes from Kimberly Greenberger with Morgan Stanley. Your line is now open.

[Kimberly Conroy Greenberger:]

Great. Thank you. A great quarter and a really exceptional year, so congratulations. Stuart, my question is on the Q1 guidance and just looking out to 2016, can you just talk a little bit more if you have some direction on the amount of gross margin deleverage? How much of that is coming from pre-opening rent? And, is the big change in pre-opening rent in 2016 primarily related to the Fifth Avenue store, or are there other sort of chunky stores that are going to be working their way into the expense base through the year? Thanks so much.

[Stuart B. Burgdoerfer:]

Sure. In terms of the gross margin decline particularly in Q1, the deleverage in buying and occupancy is more significant than the merchandise margin decline. Again, the merch margin decline is largely a function of foreign currency, but the B&O deleverage is the more significant component. And the pre-opening related to Fifth Avenue is the biggest driver of that. As Nick commented on, though, however, we are, which we view as a very good thing, these investments are good investing in remodeling Bath & Body Works locations including White Barn elements. So, the B&O deleverage is the bigger part, to answer your question. The fact that we're building a global flagship on Fifth Avenue we view as a very positive thing. It certainly put some short-term pressure on the P&L, but for our business over the long-term, it's a terrific thing. It's going to be a great store. And again, the opportunity to remodel Bath & Bodies and include White Barn in those remodels is also a very good thing, but it puts some short-term pressure on the P&L.

[Kimberly Conroy Greenberger:]

Thanks. Is the pressure...?

[Amie Preston:]

Thanks, Stuart. Yeah, go ahead, Kimberly.

[Stuart B. Burgdoerfer:]

Go ahead, Kimberly.

[Kimberly Conroy Greenberger:]

I am wondering if the pressure is in full force in Q1 already or does the pre-opening expense sort of escalate through the year.

[Stuart B. Burgdoerfer:]

It doesn't escalate through the year.

[Kimberly Conroy Greenberger:]

Okay. Thanks so much.

[Stuart B. Burgdoerfer:]

We expect that store to open in November, the Fifth Avenue store.

[Amie Preston:]

Thanks. Next question, please?

[Operator:]

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

[Lindsay Drucker Mann:]

Thanks. Good morning, guys. Stuart, I wanted to ask, you opened the call by talking about how you are planning the business for mid-single digit underlying profit growth, but you wouldn't be satisfied with it. You look for 10% plus; you're committed to it. I was curious what the drivers of meeting those targets this year would be in light of some of the incremental expenses? Is it you have to do better on comps than you have planned or are there other tools in your tool kit?

[Stuart B. Burgdoerfer:]

Yeah, that's a great question. As you outlined the question, I mean getting a sales result better than what's inherent in the forecast is the most important thing at the end of the day. But we do have other tools in our tool kit, and while there are pressures whether it's currency or other things, Beauty at Victoria's, pressures on the merchandise margin line will continue to leverage our speed tools and work to get some further improvement related to that in our big businesses. And we manage expenses in a tough-minded way. And we're clear-minded about growing expenses in aggregates lower than sales and some of those things we can adjust more quickly than others, but we're not looking to go backwards on our operating income rate, which is what would be implied by this guidance, I realize. But starting with Les and the other leaders in the business, we're not of a mindset where we go backwards on profit rate.

[Lindsay Drucker Mann:]

Great. And just to quickly follow up. In the past, when you've had reporting changes, I'm thinking specifically when Canada moved into North America and away from being a separate entity, it actually reflected some internal changes in how you thought about the business, whereas before, there were a wall between the two. Now, they work together. At least that was my impression. Is the reporting of direct comps with store comps similarly a reflection of how you might be thinking about the businesses?

[Stuart B. Burgdoerfer:]

Not so much, to be honest with you, Lindsay. And this change got some good debate within the business, and you may have heard me speak previously about some of our views on it. At the end of the day, we were the clear outlier in the industry. And folks externally were trying to estimate what our comps would be with direct in it, as everybody else in the industry does. So that's why we made the change. There's no signaling about the trend of our business. There's no significant change organizationally or how we think about the business. We've always thought about the business from a customer first standpoint, and this change in reporting is solely to follow the trend in the industry. We were the only one, as we could understand it, that was not including direct in comps and that's why we made the change. There's nothing else, nothing else to interpret from it.

[Lindsay Drucker Mann:]

Great. Thanks very much.

[Amie Preston:]

Thanks, Lindsay. Next question, please?

[Operator:]

And your next question comes from Lorraine Hutchinson with Bank of America. Your line is now open.

[Lorraine Maikis Hutchinson:]

Thank you. Good morning. I wanted to follow up on the Beauty struggles that VS has been having. Can you just step back and diagnose what you think the problem was, what the fix looks like, and then how quickly might we see this flowing through the top line?

[Stuart B. Burgdoerfer:]

Yeah, Beauty is an important category for us, as you appreciate. That's why you're asking about it. At the end of the day, it's a very good business. As you're aware, we've made changes to the product line that we call Fantasies, mists and body lotions and body creams. And we think we elevated the product to be more consistent with the emotional content of the Victoria's Secret brand. But there's more work to do to continue to elevate product at Victoria's Secret Beauty, and to ensure that we get the other elements of merchandising in line with that elevation, whether it's about how it's displayed in the store, how it's sold in the store, its pricing, we will be looking at all those things. We are looking at all those things. And we're very confident that we will get it sorted out, but it's going to take a little bit of time.

[Amie Preston:]

Thanks, Stuart. Next question, please?

[Operator:]

Your next question comes from Anne-Charlotte Windal with Bernstein. Your line is open.

[Anne-Charlotte Windal:]

Yes. Good morning and congratulations. A question for Nick on Bath & Body Works. So, you are anniversarying a very strong year from a comps standpoint. So, looking back to 2015, in hindsight, is there anything you could have done differently? And then looking at 2016, where are the growth opportunities?

[Nicholas P. M. Coe:]

Hi, Anne-Charlotte. Good morning. Are there things we could have done differently in 2015? Not that jump out immediately. I think we like the way the business performed. We like our read and react capabilities. We were happy with being slightly less promotional, and the mix of the business was healthy. If I think about 2016, it's really going to be about trying to ensure that we continue to grow whilst taking into consideration the investments that we're making into real estate from both a White Barn and Bath & Body Works perspectives that will obviously put some pressure into the business. And that is really about leveraging two things. One is the natural strength – on the ongoing strength that we have had at the Home business and, of course, the necessity to keep the fleets looking as good as possible. So that's really where our attention is going to be, is making sure that top line continues to perform well so we can continue to afford the investments that we're making.

[Anne-Charlotte Windal:]

Thank you.

[Amie Preston:]

Thank you, Nick. Next question, please?

[Operator:]

Your next question comes from Omar Saad from Evercore ISI. Your line is now open.

[Omar Saad:]

Hi. Thanks. Good morning. Wanted to follow up on PINK. I think four new stores – standalone stores this year. I think you did in somewhere in the teens last year. Are you learning something there, or is it shifting more to the full assortment of PINK within the Victoria's Secret stores. Help me understand what's happening with that brand. That would be helpful. Thanks.

[Stuart B. Burgdoerfer:]

Omar, it's Stuart. I mean, the business is performing incredibly well. So, let's just start with that. I mean, the merchandising, the sales growth, the margin results, the momentum in that business, the strength in that business is terrific. As I think we have been relatively clear about over time, the specifics on real estate are largely a function of what's going on mall-by-mall. Our views about expanding square footage for PINK haven't changed at all, meaning we believe that there's substantial sales growth and profit growth opportunity adding more square footage for PINK, and we'll continue to do that through a combination of remodels and freestanding PINKs. But there will be year-to-year variation in the number of freestanding PINKs versus growth through remodels. That again, is a function of mall-by-mall circumstances that are in front of us. So that's how we look at it. And the 2016 PINK freestanding new stores, it looks like we're – as you point out, we're going to open five and close one for a net of four. But again, the square footage growth for PINK isn't changing in any material way; very big growth opportunity for us.

[Omar Saad:]

Thanks, Stuart.

[Stuart B. Burgdoerfer:]

Sure.

[Amie Preston:]

Next question, please?

[Operator:]

Your next question comes from Brian Tunick with RBC. Your line is now open.

[Brian Jay Tunick:]

Thanks. Good morning and congrats, everyone. I guess a question on the leadership transition at Vicky's, are there any other not holes, but opportunities to focus on additional category growth or accelerate that, particularly on the VSX or on the swim side? Any thoughts on that perspective?

[Stuart B. Burgdoerfer:]

Well, Brian, it's Stuart. As it relates to leadership at Victoria's Secret, first of all, as I mentioned in the remarks, I mean, the business is in terrific shape, as you know. I mean, it's a great brand, coming off record results, and all that comes from a very talented leadership team at Victoria's Secret, on the store side of the business, on the direct side of the business. And what that team's focused on is executing fundamentals really well in 2016 to deliver yet another record result. So, are there significant holes per se or opportunities? We've got a very good team.

[Amie Preston:]

Thanks, Stuart. Next question, please?

[Operator:]

Your next question comes from Howard Tubin with Guggenheim Securities. Your line is now open.

[Howard Brett Tubin:]

Thanks very much. Can you guys just give us an idea what the launch cadence looks like or the newness factor looks like this year relative to last year at both the divisions?

[Amie Preston:]

Yeah, well, thanks, Howard. We'll start with Nick.

[Nicholas P. M. Coe:]

Hi, Howard. Kind of comparable to last year, really, in terms of the overarching both flow of how we think about how we're flowing merchandise and also probably around the level of newness that we anticipate. There's no major shift as it relates to sale timing or launch periods. There's probably an opportunity to think about how we performed in November/December Christmas timeframe, and the timing associated with the flow of that, but from a material change, nothing of a significant magnitude.

[Stuart B. Burgdoerfer:]

Howard, for Victoria's Secret, the launch cadence, number of launches will be the same, very consistent as compared to a year ago. Obviously, the specifics are different. We don't comment a lot about the details of what we're doing in advance, but in terms of overall approach and number of launches, highly consistent.

[Howard Brett Tubin:]

Great. Thanks very much.

[Amie Preston:]

Thanks, guys. Thanks, Howard. Next question, please?

[Operator:]

Your next question comes from Paul Lejuez with Citi Research. Your line is now open.

[Paul Lejuez:]

Hey, thanks, guys. Just curious if you could share maybe your thinking in which product categories you feel you might have the greatest pricing power perhaps opposite where you might need to be a little sharper on pricing? And then, just separate. Stuart, on the depreciation line, looks like a pretty big increase in 2016. Just curious if there's anything being accelerated that leads to that double digit increase. Thanks.

[Amie Preston:]

Thanks. So, we'll start with Nick on the pricing question.

[Nicholas P. M. Coe:]

Hey, Paul. So, we are constantly looking at pricing through the lens of both customer acceptance from a product perspective, as well as what elasticity we think we have in both ticket price as well as promotional price. And as you know, over the course of the last couple of years, we have taken some ticket increases that we haven't had any barrier to. And I think our ongoing goal is always to think about how do we get paid for the innovation that we put in, how do we get paid for the newness in a way that gets us to full price selling. As it relates to whether we think we have power, I think in both our Signature business as well as our Home business as we continue to see strength in it, there's obviously opportunity to look at how are we priced and is there an opportunity for either price up or more aggressive full price selling. And that's typically par for the course in terms of how we actually think about running the business on a day-to-day basis. So, price is obviously top of mind for us.

[Stuart B. Burgdoerfer:]

As it relates to Victoria's Secret, I think it's generally true for the company. I mean the pricing power starts with the power of the brand and the differentiation that we provide through the brand, through the store experience, through the merchandise. And I would say the balance point as we think about it is always being mindful of reinvesting in the product and being thoughtful about driving transactions in units versus rate. And I think the business, including at Victoria's Secret, works hard to strike that balance and has a range of pricing evaluations including good, better, best pricing and so on. So, yeah, I think we look at pricing carefully. The particular area that we're thinking about and I imagine a number of retailers are as it relates to foreign exchange, how does one think about pricing? I don't have any specific comment on that but you would appreciate that we're thinking about that, but the pricing power starts with the brand and it runs with newness and speed and we try to balance velocity and rate.

[Amie Preston:]

And depreciation, Stuart?

[Stuart B. Burgdoerfer:]

Sorry. Depreciation is running with CapEx. So we're investing a lot in – thanks, Amie, we're investing a lot in new business, which we feel very positive and optimistic about. And the depreciation increases are really principally driven by the increased levels of capital spending in the business over the last few years.

[Paul Lejuez:]

Great. Thanks, guys, good luck.

[Amie Preston:]

Thanks, Paul. Next question?

[Operator:]

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

[Ike Boruchow:]

Hi. Good morning, everyone. Congrats on a nice quarter. I guess my question would be on international and, I guess, specifically the VSBA. I think in the prepared remarks, you guys commented that the revenue and profit was down and a lot of that was currency. But could you comment a little bit more because there's 100 more VSBAs than there were last year. I'm just kind of curious if you ex out the currency and whatnot, the organic trend of that business. And also I think in the guidance you're planning to close 10 of them. I don't know if I've ever seen you guys put that out. And could you just give us more color on that? What areas are that – the tourist focused areas? Just kind of interested what's going on with VSBA. Thanks.

[Martin Waters:]

Yeah. Thanks for the question, Ike. So just to dimension how VSBA fits into the segment as a whole, there are four businesses – as a reminder, there are four businesses within the international segment. So there's the Victoria's Secret full assortment owned stores in the UK, the full assortment stores under the franchise business, the Bath & Body Works international business under franchise arrangements, and there's VSBA. Three of those four businesses had very strong year and very strong quarter. As you rightly point out, our problem in the segment was VSBA. And I'll tell you there are three drivers of that difficulty as I said in the pre-prepared remarks and they are about in equal measure. One is FX which impacts both recognized revenue and operating income. The second is a general softness in travel retail. Particularly people from Russia, from China and tourist destinations that are related to the Middle Eastern security pressures there have been affected and I think that has been written about widely across the travel retail industry. And the third, which we absolutely own and take responsibility for is weakness in our Victoria's Secret Beauty business, particularly related to the Fantasies re-launch, and that affected our business globally. To the questions about how we feel about the fundamentals of the business and store closures, feel very, very, very good about VSBA. It's a very profitable business, has a lot of runway ahead of it. It tees up the brand internationally very well for us. And we will continue to increase our footprint in that business. The closures and I think there will be maybe 10. We're guessing. We can see about five right now and we're positioning that it may be up to 10, come from a number of things. One is, on occasion, we close a VSBA in order to replace it with a VSFA. S o it's put a big store where a small store was. That's good news. That's a really good thing. Second is the nature of travel retail is that these leases tend to be three-year leases. So just by normal course of business, some of our stores that are five years old or more will be coming up for renewal. And other times, they're just relocations. So there's nothing sinister in the closure numbers. We have a lot of confidence in the business and the foundations are strong.

[Ike Boruchow:]

Got it. Thanks, Martin.

[Amie Preston:]

Great, thanks. Thanks, Martin and thanks, Ike. Next question, please?

[Operator:]

Your next question comes from Roxanne Meyer with MKM Partners. Your line is now open.

[Roxanne Meyer:]

Great, thanks. And let me add my congratulations to a terrific fourth quarter and full year. My question is on speed at Victoria's Secret. I'm just wondering if you can give us an update as to where you are with speed. And are there certain categories which represent a disproportionate opportunity going forward? Thanks a lot.

[Stuart B. Burgdoerfer:]

Yeah. At Victoria's Secret, PINK is, we would say, the fastest within the business. But with that said, speed has been leveraged in the lingerie business, generally, and in the Beauty business. But Roxanne Meyer, in answering your question, where's the biggest opportunity? It's on the Beauty side of the business in terms of getting faster and there's work happening to get after that opportunity. But PINK is very fast. Lingerie has made substantial progress and is also very fast and inherently a little more complicated given the more complicated construction of its bras and things like that versus the PINK assortment. So lingerie has also made very good progress. And to be clear, I think the biggest opportunity – we think the biggest opportunity in speed at Victoria's is in the Beauty side of the business.

[Roxanne Meyer:]

Okay, great. Thanks a lot.

[Stuart B. Burgdoerfer:]

Yeah.

[Amie Preston:]

Thanks, Roxanne. Next question, please?

[Operator:]

Your next question comes from Oliver Chen with Cowen and Company. Your line is open.

[Oliver Chen:]

Hi, thank you. I just had a question regarding digital sales. And a lot of retailers are able to achieve really leveraging their store network in terms of ship-from-store and pickup-in-store. There's been a real material mix this past year. So what do you think about that frontier in terms of where you may go? And is there interest from your customer? And if you could update us on how you are evolving in terms of your mobile presence, I know you've been kind of a pioneer on a long-term basis with your online business. Thank you.

[Amie Preston:]

Thanks, Oliver. We will go to Stuart for that.

[Stuart B. Burgdoerfer:]

Yeah, on the click-and-collect and ship-from-store, the balance point – we're all aware, you're aware, we're aware of what others are doing. I think the balance point is – and so there's opportunity there, but the balance point is how it sequences and prioritizes versus something like the selling initiative that we have got going on in our stores. And one of the things that we try to be very disciplined about is being focused in our business. And there is no doubt that there's opportunity in click-and-collect and driving more footsteps to the stores, but I think the balance point is we also see very substantial opportunity growing sales in stores through more effective selling. And so, I think we'll get to those things over time. But we'll be thinking about how they relate to other things we're trying to get done in stores and ensuring that we have great experiences for customers that are in our stores. I don't know, Nick, if you have anything to add from the Bath & Body perspective.

[Nicholas P. M. Coe:]

No, about the same.

[Oliver Chen:]

And on the mobile front, was there anything in mobile that we should know about?

[Stuart B. Burgdoerfer:]

Terrific, terrific business. We continue to make what I'll describe as continuous improvements to the technology for customers doing business using mobile devices. And I think as is the case in the industry, we're seeing very substantial growth in our mobile business and we're working hard to make various improvements. We have made some, we will continue to make some to make sure that's a great experience for customers. Great, great part of the business, that's for sure.

[Oliver Chen:]

Thank you.

[Stuart B. Burgdoerfer:]

Yeah.

[Amie Preston:]

Thanks, Oliver. Next question, please?

[Operator:]

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

[Marni Shapiro:]

Hi, guys. Congrats. Mimi Shapiro. I'm moving to the South.

[Amie Preston:]

Hey, Marni.

[Marni Shapiro:]

So I have a – you've spent a lot of 2015, particularly at Bath & Body Works, but also at Victoria's Secret, tweaking the pricing on your promotions. And it's worked very well. As we think forward into 2016, will you continue to do this? And has it helped to push up the AUR at the stores at all?

[Amie Preston:]

Thanks, Marni. We'll start with Nick.

[Nicholas P. M. Coe:]

Hey, good morning, Marni. Yes and yes. So, I think on an ongoing basis, whenever we can, we're very, very focused on, one, how do we maximize price point but also at the same time look for the margin gains that come with that. And so we've seen a couple of things work well for us. We have been slightly less promotional overall, playing with the price points and that has absolutely helped margin. But we've only really been able to do it because of product acceptance. So we think about how our number one goal is really putting a product out that she likes and trying to get it to full price. And in certain businesses we have seen very, very good traction. So we've seen AUR up but we've also seen obviously margin rates come along with that, and if we can get to that magic place of continuing to pull back less promotion, we know that that's a brand equity building play for us.

[Stuart B. Burgdoerfer:]

Victoria's Secret thinks about it the same way. They really do. They've done work in this space. They'll continue to do work in this space and Nick said it well for any retail business, it starts with the quality of the product.

[Marni Shapiro:]

Fantastic. Thanks, guys.

[Amie Preston:]

Thanks, Marni. Next question, please?

[Operator:]

Your next question comes from Dorothy Lakner with Topeka Capital. Your line is now open.

[Dorothy Senghas Lakner:]

Thanks and good morning, everyone. Just wanted to see if we could get an update on, in terms of Victoria's Secret, where you're moving the needle on getting the full assortment in more stores. I think you talked about there being about 800 that still did not have the full lingerie assortment. And PINK, I think likewise, if you could just indicate where you think you'll be as you increase the square footage growth in the business this year, where you think you – how much progress you'll make this year. Thanks.

[Stuart B. Burgdoerfer:]

Sure. So we're going to remodel a lot of stores, and you've got the detail of that in the analyst package in terms of the number of reconstructions. And, as you would expect when we remodel those stores, we're looking to make the highest, best use of that space. And so our activity has been significant over the last three years to five years in terms of remodeling stores, and we have made progress. And we will continue to make progress in 2016 with a lot of projects. We obviously wouldn't look to have the full assortment in all stores. So we'll use our business judgment about tiering assortments based on the venue and the sales potential. But we'll continue to make good progress in 2016 given the real estate activity we've got for Victoria's Secret in North America.

[Amie Preston:]

Thanks, Stuart. Thanks, Dorothy. Next question, please?

[Operator:]

Your next question comes from Mark Altschwager with Baird. Your line is now open.

[Mark R. Altschwager:]

Great. Good morning. Thank you. In the context of VS leadership changes, can you just talk about how you're thinking about the organizational structure there and any areas of opportunity you see to potentially drive greater speed and agility within the organization? And then separately, just a quick follow-up for Martin. Appreciate all the additional color on the drivers of international performance. Just any help on how we should be thinking about the growth rates and margin profile of that segment in 2016? Thank you.

[Stuart B. Burgdoerfer:]

So on Victoria's Secret leadership, Les has always been involved in the business and as you would understand from our announcements, he'll be substantially more involved in the business. As things develop in 2016, we will be looking for ways to simplify and focus that organization. Do we have specifics? Absolutely not. Is that our mindset? Generally, in our business, it is. But in terms of the detail of that, we've got a great leadership team, as I mentioned earlier. What we are most focused on are things that impact the customers, so merchandise and speed and doing things in stores and online well. But certainly, the business will look at ways to simplify and focus things as we move forward.

[Amie Preston:]

Thanks. And, Martin?

[Martin Waters:]

Yes. I think in terms of growth on international, we are pretty transparent in the analyst pack on page 15 about where the store growth will come from. If it helps to interpret that, the biggest area of growth for us in 2016 will be in the full assortment business. So we will have our biggest year of store openings ever by some distance and the complexity of that will increase significantly as we're opening in new markets with new partners that we haven't operated with before. So as I mentioned, we have Russia that already opened earlier this month, we have Mexico coming, we have China, we have Singapore. We're actively looking at real estate in lots of other geographies as well. So I think you will see a real ramp-up in the full assortment store participation of the business. How you model for that? I recognize it's tricky. You've got four businesses and you've got three different models, owned, royalty and wholesale. It's difficult to do. I would say, overall, you should expect our revenue growth to be below that of our store growth as the stores are skewed to smaller stores. And if it was around the 20%, I think that's where I would expect it to be.

[Amie Preston:]

Thanks, Martin. Next question, please?

[Operator:]

Your next question comes from Jeff Stein with Northcoast Research. Your line is now open.

[Jeffrey Stein:]

Yeah. A question regarding White Barn. I think mid last year when you had roughly 60 of these locations, if I recall, you were comping up around 25%. And I'm wondering if that – did that trend continue through the end of the fiscal year? And do you think that's sustainable as you remodel the 140 plus for the current year?

[Nicholas P. M. Coe:]

Hi. Good morning. So, yes and yes. So, we continue to like the trend of that business. Hence, as we mentioned, we're rolling obviously more of them out next year. I want to preface, obviously, when you hear that kind of number, it's a range. We see a range of all sorts of performances. On average, we very much like the performance that's happened and they've continued to be good. And so, as we think about 2016, obviously, we have got more stores rolling and our number one goal is to maintain the comp in the business, period. And then, obviously, the comp performance that we've seen in those White Barn stores primarily because of the investment that we have made. But yes, we like the results from last year. We like the results currently. And obviously, we will do what we do really well, which is, we will read and react and we will monitor it. So, we won't just continue to go blindly if things change, but so far, so good.

[Jeffrey Stein:]

Thank you.

[Amie Preston:]

Thanks, Nick and thanks, Jeff. I think we have got time for a couple more questions. So, next question?

[Operator:]

Your next question comes from Richard Jaffe with Stifel. Your line is now open.

[Richard Jaffe:]

Thanks very much. And a question about my favorite division, La Senza. You noticed, or I noticed, the expansion into the U.S. and wondering what's inspired the investment in La Senza and what we should look for in the U.S. in terms of product mix, differentiation from Vicky and especially the PINK business. Thank you.

[Amie Preston:]

Thanks, Richard. We'll go to Martin for that question.

[Martin Waters:]

Thanks, Richard. I'm glad it's your favorite segment. Mine too. So we continue to make really good progress in La Senza. We have had a multi-quarter run of positive comps, very strong sales performance, really driven by being faster to market, more fashion right, and zeroing in on the customer with a young, sexy, obvious value positioning. And that positioning is what really differentiates it from both PINK and from Victoria. And in markets around the world where we see the three lingerie brands present, we know that they trade effectively alongside each other. They appeal to different customers and where they appeal to the same customer in different shopping modes and different moods, it's all good. So, yes, we're excited to bring La Senza to the U.S. We will open probably five stores in the fall, first stores opening in November. Not particularly material in terms of the CapEx as those stores are only 2,000 square feet in space. Not particularly material in terms of pre-opening costs, but very significant in terms of the future growth opportunity that that represents. We won't get too far ahead of ourselves in claiming victory. It's just a test. And we'll call it over the holiday period and we will report back in January, but certainly, very exciting progress for the brand.

[Richard Jaffe:]

And will you let us...

[Amie Preston:]

Thanks, Martin, and one last question.

[Operator:]

Your final question comes from Matthew Boss with JPMorgan. Your line is now open.

[Matthew Robert Boss:]

Hey. Good morning. So with the direct business now having inflected to the positive side, what's the best way to think about leverage points in 2016 and then beyond, both on the buying and occupancy and then on the SG&A from a fixed cost comp hurdle?

[Stuart B. Burgdoerfer:]

Yeah. As we mentioned in our prepared remarks, occupancy will be growing at a faster rate in 2016. So, as it relates to that part of our cost structure, the leverage point is higher. And then, as it relates to the direct business in terms of its overall impact on leverage points, not a significant effect. The biggest effect is our investment in real estate in 2016 and growing at a high single digit rate above the growth rate from 2015.

[Amie Preston:]

Thanks, Stuart, and thanks, Matthew, and thanks to all of you for joining us today and for your continued interest in L Brands.

[Operator:]

And this concludes today's conference. You may now disconnect.