Good morning. My name is Lori, and I'll be your conference operator today. At this time, I would like to welcome everyone to the L Brands First Quarter 2018 Earnings Conference Call. I will now turn the call over to Ms. Amie Preston, Chief Investor Relations Officer for L Brands. Please go ahead.

Thanks, Lori. Good morning, everyone, and welcome to L Brands' First Quarter Earnings Conference Call for the period ending Saturday, May 5, 2018. As a matter of formality, I need to remind you that any forward-looking statements we may make today are subject to our safe harbor statement found in our SEC filings. Our first quarter earnings release, additional commentary and earnings presentation are available on our website, www.lb.com. Stuart Burgdoerfer, EVP and CFO; Denise Landman, CEO of PINK; Jan Singer, CEO of Victoria's Secret Lingerie; Greg Unis, CEO of Victoria's Secret Beauty; Nick Coe, CEO, Bath & Body Works; and Martin Waters, CEO of International, are all joining us today. As you know, 2017 was a 53-week year. All of the sales dollars, margin and operating income results discussed on the call today are on a reported basis, which is the quarter ending May 5, '18, versus April 29, 2017. Comparable sales are on a comparable calendar period, so the quarter ending May 5 this year versus May 6, 2017. Thanks. And now I'll turn the call over to Stuart.

Thanks, Amie, and good morning, everyone. Our first quarter earning per share of $0.17 were at the midpoint of our initial guidance of $0.15 to $0.20 per share and benefited from a favorable tax rate. Absent the impact of the lower-than-forecasted tax rate, we delivered an earnings per share result at the low end of our range. Operating income declined by 26%. Our performance was mixed. Growth in operating income at Bath & Body Works versus last year and our forecast was more than offset by a decline at Victoria's Secret. We're not satisfied with this result and are very focused on improving performance at Victoria's Secret. In doing so, we have a number of assets to work with, as described in the commentary we released yesterday, including a strong brand, which continues to lead the lingerie category in market share; a large profitable store base, with nearly 400 million visits annually; a very profitable, rapidly growing direct channel; a large and growing customer file; speed and agility in our supply chain; and a talented leadership team. The 2016 strategic changes we made in Victoria's were significant, and we're still dealing with the impacts, particularly in negative store traffic trends and the resulting increase in promotional activity as we work to build the customer file. We are confident in the strength of the brand and our ability to improve performance. But given the current trend of the business, we believe it is appropriate to take a more conservative view of the timing of the turnaround and have decreased our full year 2018 earnings guidance by $0.25 a share. With that, I'll turn the discussion over to Denise.

Thanks, Stuart. I'm going to share a brief overview of PINK's Q1 results and my thoughts about our outlook leading into Q2. Overall, PINK's Q1 comps were down low-single digits, driven by the early portion of the quarter, with performance improving late in the quarter due to strong customer acceptance of our go-forward assortment. Decline in swims, which is a non-go-forward category, had a distorted impact on our soft performance in the quarter. Bras and panties were about flat to last year. Bra performance was dominated by Wear Everywhere, sport and our Date bra relaunch. Panties were strong across all silhouettes and collections, driven by fashion and newness. Apparel had areas of success and disappointment. Our sport apparel assortment was strong throughout the quarter, while early in the quarter, portions of our lounge top and bottom business mixed -- missed expectations. Despite the soft quarter, recent performance against our go-forward strategies give us confidence. We're encouraged by our most recent apparel floor set and our Date relaunch. In June, we will relaunch a new and improved Wear Everywhere bra. And the brand continues to focus on growing our customer file and operating our business with speed and agility. Thank you very much, and I will turn it over to Jan.

Thanks, Denise. As you know and have read in the script, VSL had a record year in '15 and, in '16, made significant changes across the business. Those changes resulted in challenging performance and a loss of high-value dual-channel customers. And while we have made progress, we have much more work to do to deliver VSL growth and profitability. The plan to do that remains consistent and is centered around 3 things: knowing her, solving her choices of sexy through making great product; and serving her where she wants and when she wants. In terms of knowing her, we continue to put her at the center by engaging with millions of women in person in store as well as online through our social channels and in our customer care center. The insights we capture will help us empower making great product and serving her. In the product side, we said we would reset the business starting at the core with bras, and we have begun that work and are seeing some success with newness. We launched the Illusion bra, which is a significant incremental collection and has met or beat its plans since launch. It's the highest-AUR constructed bra, and it's margin accretive. We reset T-Shirt Bra by reducing the frame choices by half, improving the fit, and continue to see sales almost double from the original collection. We have taken price up twice since the launch due to demand and continue to watch that franchise closely. In addition to bringing innovation, we've delivered fashion through new product introductions in Dream Angels, which is up double digits for the quarter with positive margin dollar contribution. All of these bras answer her desire for choice of lining levels, choice of fashion and a high focus on fit. These bras are bringing in new and younger customers, and we are already seeing her repeat purchase. We're encouraged by this progress on bras. But again, we recognize it's not sufficient. We have a full pipeline in play, and we'll continue to evolve the business of bras, creating long-term profitable growth and new loyals. In panties, the total panty sales for the quarter are up mid-single-digit for the second consecutive quarter. The largest book of business in the 5 for panty has been reset, as we discussed last call. We reduced the number of fits by 50%, have delivered 2 quarters of double-digit top line and bottom line growth. And we're using the 5 for learnings to reset now the 3 for business using speed and agility as our offense. In addition, adjacent categories are continuing to drive the momentum. Key adjacent categories are critical to deepening her experience and are creating new loyals to drive growth. Sleep and lounge is now a 12-month business, with casual sleep up high double digits for the quarter in sales and margin. Sport apparel has been reset and continues to grow mid-single digits and continues to bring new customers. Sport bra sales were softer in this quarter. We are now balancing the innovation of those bras with more fashion choices go forward. Again, while I'm encouraged by the progress on product, I recognize there is more work to do to close the gap in top line, bottom line and customer file growth. In terms of serving her, we've continued to deepen the digital integration and investment into the brand for a seamless shopping experience, and the results have been proven positive. We're testing and evolving in-store experiences through the assortment and using a navigation that inspires and educates. We're reaching new customers through brand-accretive promotions and opportunities that connect with our girl. And we're increasing our reach and have tested and rolled a new magalog to existing, new and lapsed customers. We have seen a higher response rate to this piece, to the vehicle itself than our traditional CRM efforts. We've increased our Angel Card acquisition in the quarter single digits and continue to build back high-value dual-channel customers. Our new leadership team is in place. It's a balanced team that's always on the offense every day, every week, every month and leveraging our agility, speed of decision-making. Again, I'm confident in our approach, our process and progress in resetting the brand. More work to do, and I expect process to deepen and our progress to continue as we move forward.

Good morning. As you read in our prepared remarks, the Beauty business saw strong growth in Q1 with a positive double-digit sales comp. Q1 marks our fourth consecutive quarter of positive comps, which is an exciting trend for the Beauty business. Throughout the quarter, we saw strong growth from our declared priorities. In fragrance, our best set, we achieved double-digit growth fueled by the Bombshell franchise and fashion in our Mist Collection category. Specifically, we drove significant double-digit growth in the Bombshell franchise with the successful launches of Bombshell Seduction and our limited-edition fan favorite, Bombshell Summer. At the same time, core Bombshell, our #1 scent and one of the top fragrances in the country, had positive growth, growing the Bombshell franchise in total. Fashion continues to resonate with our customers, driving significant growth in our Mist Collection category and also in our on-trend accessories. At the beginning of February, we relaunched the PINK beauty business. We are pleased with the initial results, which drove significant growth. We are chasing back into bestsellers and continue to stay close to the PINK customer as we plan for what's next. Looking forward, we have an exciting lineup planned for Q2. In the spirit of continuing to focus on our best set, we will be relaunching one of our top scents with a new on-trend look and feel. We will continue to drive fashion and newness through Mist Collection, lip and accessories. We will bring the back-to-school season to life with new and exciting PINK beauty offerings. We are confident in our business model, our team and our continued growth and look forward to the quarter ahead. Thank you for joining this morning, and I will now hand it over to Nick Coe to share his thoughts.

Thanks, Greg, and good morning, everyone. Just a few comments to build on the prepared remarks that were shared as part of the earnings release. I'm really encouraged that we continue to deliver solid results in the first quarter following a solid performance in Q4 2017. Sales grew 12%, and operating income grew by 21% in the period. We should also acknowledge that we were lapping a softer compare as sales were difficult in Q1 of last year. As described previously, we have seen sales momentum build by leveraging our read and react capabilities to chase into more of the seasonally relevant collections that our customers expect from us on a year-round basis. We applied some really important learnings from last year that have really helped our body care and our soap business get up to a strong start, and we continue to be extremely pleased with the performance of our home fragrance business. Sales aside, the investment in wages announced in Q4 earnings release are only partially affecting our Q1 results, while a full impact to SG&A expenses will occur in Q2 and the balance of the year. Also, earnings in the first quarter did benefit from the timing shift in store remodels and new store openings, which was less impactful in Q1 but will put more pressure on buying and occupancy expense in Q2. As you all are aware, our online channel continues to experience very strong growth. And in support, we'll be making more significant investments in Q2 and the balance of the year. Looking forward to the second quarter. We remain cautiously optimistic that we can continue to drive strong sales while also investing in long-term health and relevance of our brand. It goes without saying, we will continue to diligently manage inventory, expenses and our investments into the business as well as launching new and innovative products and ensuring our customers have a great experience in both the stores and the digital platforms. Thank you and I'll turn the conversation over to Martin.

Thanks, Nick. Good morning, everybody. As I look back on our international business performance for the first quarter at a high level, I'd make 3 observations. Firstly, the partner-based businesses are doing well, with good sales and operating income growth. Secondly, we continue to invest in China, which we believe will be a very significant market for us. VSBA stores and e-commerce are doing well. And the 7 full-assortment stores, 5 of which opened in the fourth quarter, are progressing about in line with our initial expectations. And thirdly, the U.K. business continues to be very challenged, and we have a lot of work to do there to fix it. And overall, comps in all of our brands in the international segment were broadly in line with the patterns that we saw in North America. In the balance of 2018, our priorities continue to be, firstly, continuing to scale in China, where we'll open another 10 full-assortment stores later this year; secondly, improving our performance in the U.K.; and finally, continuing to build on the success of our partner-owned stores around the world. Thanks, everybody, and I'll turn it back over to Amie.

Thanks, Martin. So that concludes our prepared comments this morning. And at this time, we'd be happy to take your questions. [Operator Instructions] Thanks, and I'll turn it back over to Lori.

[Operator Instructions] Our first question comes from the line of Susan Anderson of B. Riley FBR.

This is Luke Hatton on for Susan. I was just wondering, where are you in the process of exiting swim at PINK? And then how should we be thinking about the swim-related impact into 2Q? And then maybe is there any impact that carries into the back half?

Well, this is Stuart. Well, we'll be selling down the remaining swim assortment this spring, exiting the spring season clean, and at this time, don't intend to continue in the swim category at PINK. So we'll have the most significant impact as we lap the spring '18 result in spring of '19. And our focus is -- just to be clear on that, is we believe that there is more significant growth in other categories in the business: bras, panties, loungewear, sport, beauty. And so that's really what drove the decision for the lingerie business back in 2016, and it's the underlying thought process as it relates to the PINK business as well. Thanks.

Thanks, Luke.

Your next question comes from the line of Paul Lejuez of Citigroup.

Just thinking back to some of those strategic changes you made in early '16, pulling back on the promotional mailers, catalog, swim. We've seen you add back mailers. You just brought this magalog back. Are there discussions taking place about swim? How is the leadership team thinking about that category coming back in some form at some point? I'm just curious if you guys have left the door open on bringing swim back in some way.

Thanks, Paul. And I'm just dealing with it as it relates both to lingerie and PINK. Where our greatest focus and discussion is, is in growing our core categories, Paul, and then growing the adjacent sport, loungewear and beauty categories within our business. With that said, is there ongoing dialogue from time to time out about the potential of bringing swim back per se? Yes, there is from time to time. But again, our energy is placed on growing our core categories and other adjacent categories, including lingerie, the loungewear business, sport in PINK and the beauty business as well. Thanks.

Your next question comes from Kimberly Greenberger of Morgan Stanley.

I wanted to just ask about the philosophy on promotions of Victoria's Secret. Obviously, the brand is struggling to drive traffic to the stores, and you seemed to be basically leaning on promotions in order to stabilize that traffic number. So maybe you could just share your philosophy, would you rather promote and drive traffic, get new customers into the brand and then ease off later on? Or what is the philosophical trade-off between driving traffic and margin erosion?

Thanks, Kimberly. We'll go to Jan.

Thanks, Kimberly. I would say that we use strategic moments to promote for sure to bring new customers into the box. We have new merchandise, we want her to see it. And when we do that, we're seeing that build on our new customer acquisition. And our job now is to keep engaged with her, build a loyal and move her up the funnel. So it's done at moments in time against certain books of business when we launch certain things, and it's done at moments in time that we know that she's shopping. So there is a strategy against it. It's related to her shopping patterns in addition to our product launches.

Thanks.

Your next question comes from Brian Tunick of Royal Bank of Canada.

I guess, Stuart, wanted to hear a little more about the cost savings at Victoria's Secret, maybe where that's coming from. When you think about the 500 and I think what did you say 50 basis points of EBIT margin erosion since 2015 at Vicky's. How much of that has been merchandise margins, and how much has been deleveraging on the negative sales as you sort of think about where the cost savings are going to come from?

So Brian, both components, margin rate erosion and deleveraging the P&L, have been the drivers, and just both are significant. Don't need to get into the details of how much is one versus the other, but both are very significant. With respect to the first part of your question, we are looking at all costs and expenses. We've reduced our CapEx forecast to start with that. We're looking at our marketing programs. We're looking at our supply chain to drive efficiency in all elements of the supply chain. We're looking at other opportunities to improve operating income through expense reductions in other areas of the business that can benefit operating income. In terms of going through the specific details of all of that, the key message would be, we're looking at everything, and there are substantial plans in place to contribute to the operating income result. And I would highlight in particular efficiencies we're driving in the supply chain. Thanks.

Thanks, Stuart.

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

In the prepared remarks, you discussed building back into the high-spend customer segment at VS. Could you just expand on that a bit? I mean, I guess if you hindsight the last couple of years, how much of the pressure that you've seen at VS has been a result of lost customers versus lower spend per customer due to the exit of certain categories? And just any other insights you can share just regarding the changes in customer behavior at VS?

Thanks, Mark. We'll go to Jan.

Well, I think it's a combination of things as there always is when there are complex decisions that were taken. One of which is that we have customers that were involved in certain categories that we either exited or slowed down. And our job right now is to reconnect with her with the new merchandise that we have and also build in a new customer. The books of business that I mentioned in bras, for instance, the Illusion bra, Dream Angels and even the T-Shirt Bra, 50% of the time, that customer that's coming in is under 35 years old and is new to the box. When she comes in as new to the box is under 35. So we're encouraged by that because that builds our file back. And the job now is making sure that we move those customers up the funnel. We know that our loyals have a high propensity to visit us more often than those that are new. So it's in our best interest to keep that file, especially at the high-value dual channel, full and healthy. We have hired recently a new CMO who's very involved in transactional marketing and CRM and making sure that we have a more deep relationship with who she is, we share with her newness in the box, and we serve her. So we feel good about building that back.

Thanks, Jan. We'll also go to Denise for her thoughts on their customer base.

Sure. So in addition to the aggregate VS file, PINK has the opportunity to get a unique glimpse into its high-value customers through the lens of PINK Nation, where we are able to measure her affinity, number one, very important; and number two, spend level longitudinally. We have found great stability in that segment of our business. Therefore, little to no erosion seen. As recent changes have been made and reflected on by the exec team, these do not appear to be impacting PINK Nation population at the present time. Thank you.

Thank you.

Your next question comes from the line of Paul Trussell of Deutsche Bank.

To Stuart and Jan, just wanted to know how and when the merchandise margin decline will stop and will start to see some stabilization. Are there any notable green shoots on that front? And to Martin, quickly, if you can just outline or detail the significance of the decline ongoing in the U.K. and the preopening cost in China and how we should think about that time line.

Thanks, Paul. So we'll go to Stuart for the question about margin.

Yes. Thanks, Paul. With respect to the margin rate, we would expect some further erosion in the second quarter and then a relatively flattish margin rate for both the third and the fourth quarter. So a little bit more pressure in Q2 and then a pretty steady result versus the prior year in the fall season. I'm speaking for the company in total. And that's a function of we're lapping softer numbers obviously, and some of the supply chain-related benefit that I discussed is assumed within that overall view.

Thanks. And Martin?

Yes. So as it relates to the U.K., the decline has been significant. As a reminder, it's in 3 areas. Firstly, the same pattern as we see in the domestic business. Secondly, I think you will have read about the very poor market that there is in the U.K., and we've certainly been exposed to that with reductions in traffic all across the U.K. And thirdly, there's an element of our own execution where we need to do much better. So no hiding from the fact that it's a very significant reduction in the U.K. You also asked about China and preopening costs there. So with 10 stores opening that are large stores, there is a very significant part of our investment that's related to that preopening. Our expectation is that it will reduce as we go forward into 2019, but that's largely dependent on the decision that we make about how many stores we'll open in 2019, 2020. And we won't be giving guidance on that until later in the year when we've got a better read on the business.

Great. Thanks, Martin.

Your next question comes from Omar Saad of Evercore ISI.

Jan, I wanted to ask you a follow-up and maybe if you could elaborate a little bit more on your comments around losing that high-value dual-channel customer, I want to make sure I understand what specifically you mean. I think you're talking about an older customer, but maybe you could tell us some of your thoughts and insights on why you lost them and where they went and how you're going to get them back.

Thanks, Omar. There's a combination of things as there always is. I mean, the high-value dual channel customer, we look at age. And yes, some of them have been with us, and some of them have just left the brand by natural attrition. Some folks have left the brand due to the categories that we exited and the categories that we slowed down. And so we want to make sure that we bring in a new customer. And we're doing that quite aggressively, as you're seeing in some of our books that are working and the data I mentioned a second ago. So we're not slowing down in terms of reaching her, making sure we have products for her and bringing her in. And I am excited about the newness in bras like Illusion, which is our highest-AUR bra, and seeing new business come in through that, both younger customers, much younger, younger than we anticipated, and then seeing her come back in and shop the box or bringing in customers almost twice as many through a T-Shirt Bra but seeing her move up to Dream Angels. So we're already seeing that funnel start to fill and grow. It's really important that we engage her. And those things take time because having somebody return visit takes time. So I'm pretty excited about the beating of green shoots that are happening, but I recognize that we have a gap that we have to fill in that -- what I'd call file of our consumer file.

Your next question comes from Anna Andreeva of Oppenheimer.

Question is to Stuart. The comments about 3Q earnings being below that 1Q historically does imply a pretty big acceleration in the fourth quarter. So maybe talk about your confidence level in the recovery there. And how are you guys approaching the holiday compared to last year? Any color by brand would be very helpful.

So the fourth quarter assumption is between a low- and mid-single percentage increase in operating income, and that's now lapping several soft years in the fourth quarter. As you appreciate, it's the biggest quarter of the year by far. Our sales and margin assumptions, we believe, are reasonable. Certainly, the tax rate reduction does not have kind of an equal effect by quarter. And so we believe based on what we know at this time that the full year view is a reasonable view obviously. That's why we've put it out, and we think it reflects a reasonable pace of turnaround and trajectory of turnaround in the Victoria's Secret segment and the balance of the business. And again, it doesn't imply a heroic assumption with respect to sales and margins. So -- but we've got work to do, and it certainly reflects a change in trend but not a dramatic change in trend.

Thanks, Stuart. And I mean, it's a little early to be talking about holiday in any great detail, but at a high level, we'll ask the CEOs to give a few thoughts about that. And I'll start with Nick.

I think if I think about last year, the biggest changes we made last year were really retooling an awful lot of the business from a product perspective. And the biggest impact from our learnings really came in Q4, and that manifested itself in our need to really chase back into some of the seasonal stuff that we weren't prepared to be in. So the opportunity this year obviously is we are prepared to be in those seasonal stories. And we literally saw the trajectory of our business change in the third or fourth week of October last year into a very positive arena. And that was driven by our ability to chase back into those things. So being able to plan for that ahead of time and know that that's something the customer really wants and very much demanded from us, we'll be in a much better position to service that particular piece of the business, which is extremely important to that time of year.

Thanks, Nick. Denise?

Sure. In PINK, with respect to holiday, we typically experience a fairly significant distortion into our loungewear segment. As you followed the brands reporting in recent earnings calls, you've heard commentary with respect to some softness in that sector. As we begin to regain momentum in the lounge sector, this is truly the accelerant that propels us forward into holiday, hopefully with increasing confidence. In addition, I have commented with respect to last holiday on the brand's ability to sustain performance in box, gifting and sleepwear, which is encouraging. So as the loungewear business finds its turnaround or inflection point, we're hoping to see a happier result in Q4. Thank you.

Thanks. Jan?

Thanks, Amie. I would say in holiday, we had a lot of great hindsight from last year. We actually came into the season pretty strong, and we had some opportunity that we all know about in December. That has given us a great learning agenda that we've put into play for spring, particularly around the adjacent categories of sleep, lounge, sports and bras that are glamor bras. So we are a bit smarter on how to use our agility and our speed muscle. We're actually testing through that in the beginning of the year. Though you can never replicate Christmas, we know what levers we want to pull. And the other news that came up for us off-holiday in combination with Greg's business was around gifting. And I think continuing to distort gifting in the final weeks of holiday sounds obvious, but it's an effort for us to come together. And we're going to do it, and we're going to take that one to a new level this holiday as well. I'm encouraged by the learnings.

Thanks, Jan. And finally, Greg?

Yes. In Beauty, I would say that first and foremost, we're really focused in -- on building what's already working in our business, and that will pay off in dividends in holiday. Our penetration to the total box increases significantly, and so we're really focused on winning there. It's all about gifting and -- important there. In the PINK world, it's -- with the growth of the PINK beauty business, it opens up a whole new category of guests for that customer and for the business there.

Great. Thanks.

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

Just 2 quick modeling questions. First, for Martin, I think Paul was trying to get to this. But around profitability in China, I think you lost around $50 million, $55 million last year. Can -- I know you don't know future years because it's dependent on store openings. But for this year, are you expecting those losses to widen or stabilize or come in a little bit better? And then, Stuart, real quick, in the remarks, you mentioned the BBW margins benefited from a timing shift of real estate costs into Q2. Can you just quantify that for us so we know how much of the margin to think about for Q2 when we model that out?

Thanks. Martin?

Yes. So thanks for the question, Ike. so you're right that we invested $50 million, $60 million for the full year. And what I would tell you is that that's somewhat front loaded, so you can expect the back half of the year to see a lower level of loss than the front half of the year. That's about all I can tell you at this stage.

Great. Thanks, Martin. Stuart?

Ike, on the effect that Nick mentioned on the remodel timing, it was some effect, but I wouldn't describe it as that significant as it relates to the year. So a little bit of timing shift but not large enough really to quantify. Some impact but not that big.

Your next question comes from Oliver Chen of Cowen and Company.

We've done so much research on the younger customer. I have a simple question with a complex answer. What are your thoughts on how to engage the younger customer? And how would you prioritize strategies here? And what are your thoughts about the segmentation of your direct mail program, using data or loyalty, just to make sure that it's brand accretive and balancing traffic versus promotions?

So Oliver, I want to make sure, are you asking with respect to a specific business?

VS would be a great one to address. That would be great.

Okay. Jan?

Okay. So first of all, I think it's -- with the younger customer, obviously, the social channels are critical for us, and we're seeing incredible improvement from our engagement, which means not just likes but actually commentary and conversion. We're happy about that. The tone and manner of that channel is evolving. And I make it my personal business at 4 a.m. to be reading each one of them, so I stay pretty close to social as the world is, and I feel good about the direction it's going in. In terms of segmentation, yes, high-fidelity segmentation, awareness of who she is, what she's buying, she's in our store, she's on our sites, we have that data, and then returning the conversation with her with content that will resonate. So it isn't a one-size-fits-all. It's not everybody gets everything all the time. But the high-fidelity nature of segmentation and conversation is the key for us to get into an engagement model that we know translates into loyalty. She feels she's part of this brand when we do that well, and she comes and sees us more often.

Okay, great. And Denise?

I would respond with respect to the emerging generation defined as Generation Z, which is of particular interest to the PINK brand, as you can well imagine, as these consumers are now in their teens and beginning to make significant strides in their spend levels in the retail sector. I think it's beholden on the brand, to tell you the truth, in order to appropriately service this age cohort to understand her social migration patterns as she brails the social landscape. There are distinctive differences between this generation and the generation that preceded it. And I would say we would be beholden to understand that. With respect to the e-com nuance associated with this generational shift, we are as well influencing our e-com experience in order to appropriately engage her with the speed and efficiency that she expects in order to have a satisfying brand experience. Thank you.

Great. And Nick?

Yes. Oliver, I would put it into 3 buckets. And I think the first bucket is a lot of the improved product that we put into the stores, especially from a naturals, healthy, good-for-you slant, has engaged the younger customer. The second bucket I would say is with pretty aggressive testing agenda to understand what, from a product perspective, that we haven't normally been in has attractive -- can we attract the younger customer with that. And then thirdly, with our remodels, we're genuinely seeing not only higher traffic but also a really healthy mix of younger traffic coming to the stores. And so not only do we get a nice return on our investment for those remodels, but we're also seeing a nice pattern in terms of traffic. And that's a nice mix of younger customers as well as our loyal customers. So that's really in those 3 buckets, how we're approaching it and making nice headway.

Great. Thanks, and thanks, Oliver.

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

I just wanted to come back to the question about the trade-off between promotion and revenue. In the past, you talked about prioritizing profit dollars, not margin rate. And I just want to understand, I appreciate the idea of using promotion around new products and trying to get customers in, but you've seen more of the sort of bounceback promotions that you started last November. And I'm just wondering sort of how to reconcile where you are in that process and if you think that there's an opportunity to pull back on some of that promotion or at what point you would be willing to pull back on promotion and let revenue decline.

Yes. I'm going to try to take a crack at following up on the earlier discussions. So it's Stuart. We're balancing a number of factors, as you can appreciate, and I think you recognize that in how you teed up the question. I mean, at the end of the day, in the Victoria's business, we've had traffic pressure for reasons described, and we're trying to drive traffic into the business through promotion. At the same time, the leadership in that business works very hard to have the most compelling product possible. And where we do, we get good result. And that allows us over time to reduce the amount of promotion in the business. We're always going to end seasons clean with respect to inventory, so that's another balancing factor in all of it. But it's an equation -- not a literal equation. It's a balancing of 4 or 5 main factors, ultimately driving visits into the store, margin dollars and ensuring that we're driving trial in new items. And now over time, as we improve the merchandise or if we've got a key item that's doing really well, Jan mentioned a number of price-ups, we take price-ups where we can in any of the main parts of the business, whether it's Bath & Body, PINK, Beauty, Lingerie. So it's balancing a number of factors, again, I think as you recognize, ultimately looking to drive margin dollars in the business.

Thanks, Stuart.

Your next question comes from Marni Shapiro of The Retail Tracker.

So rather than focus on VS like everyone, I thought I'd bug Nick a little bit. You guys have launched a lot of new products again. You did the same thing last spring. So I'm curious if you can talk a little bit about what you are seeing, as she comes into the store, what's working best because it feels like the launches this year are very distinct. You have some very strong fashion products that are driven by the look and -- look of the packaging. You have some cool modern packaging, and then you have a whole push on naturals and organics. So without giving away trade secrets, if you can just give us a little insight as to what your customer is leaning towards and what's working for BBW.

Thanks for the question. Let me see, where shall I start with this? I think at the core of our business, what we're seeing is a very nice trajectory in terms of comp. And that's really being driven by a healthy mix of, what is the loyal customer that knows us and knows us well, what is she looking for? And we stayed very close to her from that perspective, and I would say the core of the business is quite healthy. The other part of the comp or other part of the growth has really come from what you've just articulated, the newness that we've dropped that has certainly fallen into the healthy, good-for-you wellness bucket as well as some of the fashion ideas that we've launched that obviously drive traffic because at the end of the day, we do think of ourselves as a fashion brand, and we do try to make sure the front of the store reflects that. So to summarize that, I'd say a really healthy mix between, what is the core loyal customer looking for us that she knows and loves us for, and what have we been able to do with new introductions that have gained a healthy element of traction in the store? So I think the way you're seeing it is probably a fair indication of -- or a fair summary of what's happened.

Your next question comes from the line of Dana Telsey of Telsey Advisory Group.

Can you talk about of the magalog a little bit, the cost, the return on investment for the return to a magalog and how you're thinking about the magalog in terms of the overall marketing mix? And just lastly, on these store operations at Victoria's Secret, how is the progress on that going?

Thanks, Dana. We'll go to Jan.

Thanks, Dana. I'm not going to get into the financial network and matrix of the magalog business model, but I'll tell you that what we did recognize is that we have a lot of great content, and we want to share that with a lot more people. So we're investing in the opportunity to develop a piece that she actually, we're finding, keeps around the house a little bit longer, has longer engagement, has had a higher response for us than the traditional CRM. So as the product continues to evolve and we have stories to tell and we have connections and information to share, we want to make sure that we're getting that information out to her as an existing customer as well as a new customer as well as a lapsed customer. So we feel really strong about the test that's happening. We're going to watch it, and we're going to calendar how many and how often go forward. Your second question was about store operations. I'm sorry, Dana, can you repeat it?

Yes. It's about the store operations of Victoria's Secret and how the changes are progressing.

Dana, I'll take a crack at it, and then Denise or Greg or Jan may want to add to it or -- the focus at Victoria's Secret is the same as it is, frankly, at Bath & Body Works. And first and foremost, it's to -- through effective engagement with store associates to deliver great experiences in stores. As you know, we increased our wage levels and enhanced our benefit programs, the purpose of which was to make sure that we were very competitive on that front to drive a more stable, lower-churning workforce. And so our primary focus is on ensuring that we've got the absolute best workforce in retail at Bath & Body, at Victoria's Secret, all aspects of the business with a particular focus on wages and benefits. And then apart from that, in terms of fundamentals around technology and scheduling and all kinds of things, we continue to do various things to improve the execution of our business. But it really starts and ends with the quality of our associates, their training, their capability and the stability of that workforce. And the whole business is focused on that. Thanks.

Thanks, Stuart.

Your next question comes from Bob Drbul of Guggenheim Securities.

Just if I could do 2 quickly, I'm sorry. The first one is on the remodels for Bath & Body Works, where do you see that going in terms of how many stores do you feel like you need to touch at this point and over the longer-term time frame? And just a question on the Victoria's Secret brand in China is, with the fashion show, I guess can you just give us an update where you think the brand is from a marketing perspective in China at this point?

Sure. We'll start with Nick.

So I would say over the course of the next 3, 4 years, there's probably another 500 to 700 stores that we could get to, which would get us a total of about somewhere between 1,100, 1,200 stores in totality. And that's obviously dependent upon when were stores touched previous to the remodel that we've got, where are we on existing leases as we continue to have good flexibility with our real estate. So that's probably where we're headed. And we -- as I said earlier, we continue to be happy with the results that we're getting, but we also continue to monitor them very, very closely to make sure that they still make sense and that they're still working the way that we want them to work.

Thanks, Nick. And Martin?

Yes. So certainly, the fashion show is very good for our awareness building in China. We think that something in the order of 300 million people saw the fashion show last year either through TV or digital media or some other way. So we think we have a pretty high recognition of the brand, but what's less well understood is what the brand stands for and what role the brand can play in our customers' lives. So we certainly have work to do there. And the way that we're getting it there is principally through digital connections, so building our digital file, building the e-com channel rapidly. And as we start to open these additional stores in new cities, we'll be announcing the brand in a very important and aspirational way, not least with the launch of a flagship store in Hong Kong, which will be the third of 3, Beijing, Shanghai and Hong Kong, as really important beacons for the brand. So certainly, high awareness and work to do on getting the equity of the brand in the right place.

Thanks, Martin. That concludes our call today. Hope everyone has a great Memorial Day weekend, and thank you for your interest in L Brands.

Thank you. That does conclude the L Brands First Quarter 2018 Earnings Conference Call. You may now disconnect.