Welcome to Limited Brands Inc. fourth quarter and year end 2006 earnings release conference call. (Operator Instructions) Now I'll turn the call over to Mr. Tom Katzenmeyer, Senior Vice President of Investor, Media and Community Relations. Sir, you may begin. Tom Katzenmeyer: Thank you and good morning, everyone. Again, this is our fourth quarter and year end conference call for the period ending Saturday, February 3, 2007. Just as a reminder everything that we say today is subject to our Safe Harbor statement that's in our SEC filings. Everything you need for the call and for this report is out on our website. We did that after the close yesterday, so you can access that. If you can't by those means, you can call our office and we'll fax those materials to you. We have a lot of ground to cover today. This is who is with me: Martyn Redgrave, EVP, CAO, and CFO; Sharen Turney, CEO of Victoria's Secret and Mark Weikel from Victoria's Secret is also with us today; Neil Fiske, CEO of Bath & Body Works; and Jay Margolis, President of our Apparel Group. Jay's in New York, but we'll go out to him also for comments and questions. Stewart Bergdorffer, our EVP of Finance, and of course the ever charming Amy Preston is here with us this morning, our VP of Investor Relations. We are going to go right to Martyn and the other CEOs will cover some territory here, then I will be back in a few minutes for the Q&A session. With that I will turn it over to Martyn. Martyn Redgrave: Thanks, Tom and good morning, everyone. First of all I want to explain that all the results that we will be discussing on this call will exclude the 2005 fourth quarter one-time…

Our first question is from Paul Lejuez – Credit Suisse. Paul Lejuez - Credit Suisse: Thinking ahead a bit, because you guys are such a fourth quarter story, this fourth quarter you invested big in inventory and marketing, especially on the Victoria's Secret side and we saw the results. I'm just wondering, what do you do in '07 for an encore to drive the fourth quarter comp? I would think more inventory and marketing is not the answer. Tom Katzenmeyer: Paul, do you want us to keep that to a comment about Victoria's Secret? Paul Lejuez - Credit Suisse: If each could comment that would be great, but Victoria's Secret was the main focus. Tom Katzenmeyer: We'll start with Sharen then. Thank you. Sharen Turney: Although we talked about 10% increases, which we are very excited about, I think there's still plenty of room in the fourth quarter for next year, especially in the first three weeks prior to December. When you think about the inventory investment we do not have to reinvest that. In fact, we are being able to identify where we can actually smooth that investment out. We also think there are categories that we still have not gotten to the market share that we would like to in terms of, for an example, sleepwear that we think is a big opportunity for us as we are thinking about that time frame. So in terms of looking at that time fourth quarter where we see the biggest growth opportunity lies right smack in the middle of the biggest traffic time which is the first three weeks before Christmas. Tom Katzenmeyer: Neil, comment about Bath & Body Works. Neil Fiske: Similar theme for us. Really the way that we look at the opportunity for growth next year is in the time staging and the segmentation of holiday time periods. So last year we set out to improve our holiday 1 theme with our Happy Fallidays theme and have a better transition which was very successful. Holiday 2 was strong for us, and holiday 3 was relatively weak. So we see that there is clear opportunity for us to grow our holiday 3 sales by strategizing that time period differently and distinctly as we did in 2006 with holiday 1 and holiday 2. We have got some surprises in store for next year's holiday 3. Tom Katzenmeyer: Thanks, Neil. Jay, if we can go out to you for similar comment about apparel. Jay Margolis: I think Neil hit it right on the head. Segmenting to consumers purchasing habits, key items for them, gifts for friends or significant others, or the parties. Really how you look at that in terms of when people do purchase things has changed and the timing of it in terms of how we bring newness to the floor and all those categories I think is a huge opportunity for next year. Tom Katzenmeyer: Thanks, Jay. We're ready for the next question.

Our next question is from Jeff Stein - KeyBanc Capital Markets. Jeff Stein - KeyBanc Capital Markets: Sharen, I'm wondering if you can comment if you have seen the J.C. Penney launch of their Ambrielle line and what you think of it? In the context of that, what appears to be an increased level of competition in intimate apparel, talk about your ad spending plans for the current year, how much you would expect to increase your ad spending in dollars? Sharen Turney: First of all, we're very aware of J.C. Penney's strategy, and, in fact, we know that they had worked with Inner brand and know that they have actually patterned Victoria's Secret and segmented their business right at Victoria's Secret. So we always appreciate competition, and it's something that we will continue to watch. I think if you look at Victoria's Secret and part of our strategic initiative within marketing over this past year, the investments that we have put into it is to gain market share. And we are taking a very aggressive approach on that to continue to gain market share even though new competition is coming in. If you look forward into spring we're probably looking at our marketing dollars being flat to last year in the spring season. Jeff Stein - KeyBanc Capital Markets: And how about the back half? Sharen Turney: The back half probably flat to down a bit. Jeff Stein - KeyBanc Capital Markets: Okay. So you think that your current level of spending obviously you believe is sufficient to continue to sustain market share growth, or at least hold your share? Sharen Turney: We actually have an aggressive approach to gain market share, but I think that when you look at the amount of investment that we layered in in '06, and as we talked to everyone previously, it was a learning year. So we know that we made some missteps, we know that we kind of duplicated, we overdid some things. So what we have learned about that, by spending the same amount of dollars we are going to be much more efficient and get a better sales growth, hopefully to that. I don't think you will see as much of that in the first quarter, and hopefully you will start seeing a tip of that in that the second quarter. Jeff Stein - KeyBanc Capital Markets: Thank you. Tom Katzenmeyer: Thanks, Sharen. Next question, please.

Your next question comes from Stacy Pak - Prudential. Stacy Pak - Prudential: Just on the February comp can you clarify VS versus BBW? Because I do understand weather hitting VS for Valentine's Day, but not so much BBW. Then my question is, I think you said that you're planning a mid single-digit comp for '07 which sounds kind of high to me for a plan. Then I think you also said, at least if I heard you right, 18% SG&A dollar growth in '07? Is that correct? If so, can you account for that? Because that sounds very high, and I'm kind of wondering what comp you are going to need to leverage that kind of dollar. Martyn Redgrave: Well, I think what we can say, as we said, is we're coming out of the box slower. We think that the Valentine's Day week was disappointing for I assume most retailers, but particularly for a business like Victoria's Secret. In terms of geography, it's pretty clear that our Southern and Western markets are doing better than our Midwest and Northeastern markets, as you might expect. Our mid single-digit fallout for the first quarter is really driven by what we're seeing in February. But we still expect the March April timeframe to be strong. I'm not sure we can go into much more detail than that by brand. Obviously our sales call is next week, so you will see February in detail next week. Sharen Turney: Stacy, your second question was about the '07 comp guidance? Stacy Pak - Prudential: '07 comp guidance, a mid single-digit, and then SG&A dollar growth. Did you say 18%? That's a big number. Can you account for that? Martyn Redgrave: What I said was that the SG&A rate for the first quarter would be…

Your next question comes from Jennifer Black. Jennifer Black - Jennifer Black and Associates: My question is for Sharen. I wondered how your test is going with your Very Sexy sports bra, and we have a big test going on in my region, and I wondered how you feel about athletic as a category for Victoria's Secret. Sharen Turney: Right now we're in the stage of just testing our Sexy Sport. As you know, we have that in about nine stores, and it is something that we do feel bullish about but we're going slow to go fast in terms of really learning about that to make sure that we can differentiate ourselves and keep it on the sexy side as well as giving it the functional benefit. So we are being kind of quiet about what we're doing because we really don't want to share that with all of our competition but it's something that we do believe in. Jennifer Black - Jennifer Black and Associates: Thank you very much. Tom Katzenmeyer: Thanks, Jennifer.

Your next question comes from Tom Filandro - Susquehanna Financial. Tom Filandro - Susquehanna Financial: I think this question is for Sharen first, and then Neil as well. Sharen you touched upon this a little bit, but the CRM dollar off and give-away deals as well as like these GW and PWPs, it's starting to feel like maybe customers are becoming conditioned to spend only when they have a deal in hand. So can you give us more color on what your view is for those type of events in '07? And then I'd also like to ask that question of Neil. Sharen Turney: Sure. That is not our intent to become a promotional house. We worked over the last, really, when we turned to brand, really worked outside of that promotional build. But what our intent is, is really when you think about trial, when you think about giving away a free panty, if it's a great panty, they try it, they want to come back to it. We also look at it as an opportunity to introduce them to new categories whether it be PINK in terms of accessories. It's also a great leverage when you think about the beauty business. As many people do a lot of sampling into fragrances, or sampling into other new lines, so it it's really about sampling, it's really about getting into the products that maybe they don't think about from an adjacency that Victoria's Secret would be in, as well as a trial program. It's something that we really turn ourselves inside out about. Did we go a step too far maybe in '06? I would say probably yes, and it's something that we're looking at to making sure that anything we do really follows the guidelines of trial, introduction into…

Your next question comes from Dana Cohen - Banc of America. Dana Cohen - Banc of America: First, did PINK misplan in the fourth quarter? Given the merchandising erosion at Victoria's Secret in the fourth quarter why are you so confident about the inventory levels? A second question is, when I hear you guys talk, it's very top line focused, gaining market share, particularly at Victoria's Secret, and yet the merchandising margins are eroding, and you guys have delevered SG&A for two years. Where I'm struggling is, why isn't there a more optimal way to run this P&L, perhaps not giving up gross margin and perhaps regaining some gross margin? Tom Katzenmeyer: Why don't we start with PINK, with Sharen, or Mark with Sharen, and then we'll go to Martyn. Mark Weikel: PINK exceeded sales expectation within the fourth quarter. We had very aggressive expectations. So, not sure if we were unclear on that previously or not. On our operating income, Dana, our financial architecture going forward is really based on mid single-digit base and core business growth, and then we will have faster growth in emerging categories, like PINK and other businesses like that. Then we'll have growth from real estate as well. What we're intending to do from that is deliver high single-digit or low double-digit operating income growth. The other piece that Sharen mentioned that I'm not sure if it came across on the call, was we do continue to learn more about what's going on with the marketing spend within the store, and we're learning more and more from what our customers' response is to these different efforts and believe that we will begin to see some efficiency in the second quarter of '07. Dana Cohen - Banc of America: So you think there is an…

Your next question comes from Lorraine Maikis - Merrill Lynch. Lorraine Maikis - Merrill Lynch: Could you just talk about free cash flow goals for the year and how you plan to use that cash? Tom Katzenmeyer: Thanks, Lorraine. We'll go to Martyn for that. Martyn Redgrave: Well, in terms of goals for the year obviously we're looking to generate more operating cash flow from the operating results of the business. We do not anticipate investing quite as much in inventory in 2007, but I'm not going to go into more detail than that. We have given you the number for CapEx. So on that basis, you should be able to get a pretty good feel for how we're thinking about free cash flow, and, of course, we are maintaining our dividend and plan to continue to think of that in terms of the high yield position that we have, 2% plus kind of dividend rate or yield. To the extent that we have leftover free cash flow that is, in fact, excess, we will return it to shareholders through share repurchases. We also have a financing transaction that needs to take place in 2007 related to the La Senza deal that we have previously signaled which we're watching the market on and getting ready to place. Tom Katzenmeyer: Thanks. Let's take three more questions and then we will wrap up.

Your next question comes from Kimberly Greenberger - Citigroup. Kimberly Greenberger - Citigroup: I had an inventory question specifically with regard to Victoria's Secret. Sharen, I think you indicated that the sales plan in fourth quarter at Victoria's Secret you missed a bit, so if you could talk about what portion of the inventory increase was a result of the missed sales plan and how you expect to get back on track relative to the optimal inventory levels? At Bath & Body Works, we're sort of seven or eight months beyond the supply chain initiative. When do you expect that safety stock to be unnecessary and what is the strategy for working through that inventory? Thanks. Tom Katzenmeyer: Kimberly, we'll go to Martyn for that question. Martyn Redgrave: I think coming out of the season at Victoria's Secret as I have said, I have given you quite a bit of detail and breakdown on what's in that inventory, much more than we ever have before and I have tried to give you a sense of how we think about it category by category. Any time you miss sales you have some excess inventory that you're potentially carrying over to the next season. Victoria's Secret above all and beyond any of our businesses has a business model by which it clears and sells through excess inventory more efficiently and with less financial detriment than any other of our businesses. BBW is a different situation because of the systems conversions and the incremental inventory we have invested in supporting their investment through those conversion timeframes. We hope to be able to work that inventory back down to what I call the standard inventory per square foot type of investment level as we go through 2007, but the one that we don't want to do is starve that business and have it be out of stock. So as I said I think BBW's performance, profitability, sales, otherwise, certainly indicates that that investment has been a reasonable one, but I do expect, and we are planning to reduce that investment level as we go through 2007. Tom Katzenmeyer: Thanks. We'll take two more questions.

Your next question comes from John Morris - Wachovia. John Morris - Wachovia: A question for Martyn, and a quick one for Neil. On the SG&A spending you mapped out pretty clearly the guidance for the full year, and I guess that would imply, given the continued buildup just here in the first quarter, a pretty nice, commendable improvement in the SG&A ratio in the back half. Is that simply because you're lapping the marketing spend at VS from last year, or are there other cost control initiatives that are helping you to get that implied down ratio? Neil, it's been some time since the supply chain initiative went in at BBW. What are the specific benefits that you are seeing from that at this point that can be applied to some of the other businesses and divisions? Thanks. Martyn Redgrave: I'll just comment quickly on SG&A again. Yes, because we did substantially increase our investment in marketing in 2006 we are expecting that to leverage a little bit more positively in 2007. I think Sharen gave a very articulate answer as to how and why we think that would take place. The technology investment is the other major year-over-year increment, and the balance we are looking for leverage in and plan to start to leverage it. Tom Katzenmeyer: Thanks. We'll go to Neil for the second part of the question. Neil Fiske: John, the way I would think about the supply chain initiative at Bath & Body Works is that it's really a multi-year kind of a program. And if you think about just the scope of what we have changed out virtually every information system and every information platform in the business, along with that, redesigning and implementing a whole new set of processes to take advantage of that technology. The people side of that equation is enormously important, training people to use the processes; it just takes time, frankly. So I think the short answer to your question is very little short-term benefit so far in what we have done with Insight. The payoff is really more in the medium to longer term timeframe, and I think very clearly what we can see is that when we build a system around the customer pull at a store level and work that all the way back through the demand chain, we're going to get a much more efficient inventory model for the business that replenishes more quickly with actually less inventory in the total system delivering a higher level of sales. But it really is a multi-year commitment to realize those benefits just because you have technology, you have process, you have people, all of which need to change and come together in order to realize those benefits. Tom Katzenmeyer: Thanks, Neil. We'll take one last question.

Your final question comes from Marni Shapiro - The Retail Tracker. Marni Shapiro - The Retail Tracker: I have a question on apparel. If you could talk about it across the brand, it seems Express has got its feet together here on the wear-to-work, and Victoria's Secret on Direct, and PINK is expanding its lounge. I guess where are the holes in each of those divisions on apparel to improve the other portion of it? As you expand more into the lounge wear and apparel segment at PINK, what should the right mix be, apparel to intimate at PINK over the next 12 to 18 months? Tom Katzenmeyer: Why don't we go to Sharen first, then we'll go out to Jay in New York. Sharen Turney: Well, first of all, in PINK we're really not looking to get in too deep into the apparel business. Basically it's a loungewear strategy, it's really different in terms of a fit methodology, and when you think about it in terms of looking at the segments that we think are continuing to be opportunities at our top to bottom ratio, we actually distort very well to the bottoms and think that there's a lot of opportunity within the T-shirt category and some other top categories to go along with that strong bottom performance. Moving into the direct apparel business, as you know, we did have strong double-digit growth. We are always looking at opportunities in terms of segmentation of that business. We actually have had a good run at a balance between our lifestyle, which is how do we actually go after the career business versus the casual business and to keeping that balance to that. Also within that apparel business is also a strong swim business which really is an opportunity for us to leverage our core equities from the bra technologies into our swimwear technologies, so it is something that we continue to focus on as we go forward. Tom Katzenmeyer: We'll go out to Jay for a final comment. Jay Margolis: Thank you for an apparel question. I appreciate it, Marni. Again, looking at our consumer and understanding we are best at legs, and look at that category, but our tops are turning very fast, there's a casual opportunity, there's obviously a young wear to work opportunity. So we're looking at all the various parts of our business and so far the balance in what we're doing in the store is working well. We have a best T-shirt category which continues to work really well for us into the spring season, and we're pleased with the way the store looks right now. Hopefully you are as well. Tom Katzenmeyer: Thanks again, everyone. Thanks for listening in. We appreciate your continuing interest in Limited Brands.