Stuart Burgdoerfer - Chief Financial Officer, Principal Accounting Officer and Executive Vice President Sharen Turney - Chief Executive Officer of Victoria's Secret Megabrand & Intimate Apparel and President of Victoria's Secret Megabrand & Intimate Apparel Martyn Redgrave - Chief Administrative Officer and Executive Vice President Amie Preston - Vice President Investor Relations Andrew Meslow - Chief Administrative Officer

Dana Telsey - Telsey Advisory Group Stacy Pak - Barclays Capital Randal Konik - Jefferies & Company, Inc. Jeff Black - Citigroup Inc Michelle Tan - Goldman Sachs Group Inc. Paul Lejuez - Nomura Securities Co. Ltd. John Morris - BMO Capital Markets U.S. Howard Tubin - RBC Capital Markets, LLC Omar Saad - ISI Group Inc. Jennifer Davis - Lazard Capital Markets LLC Marni Shapiro - The Retail Tracker Jeffrey Stein - Ticonderoga Securities LLC Neely Tamminga - Piper Jaffray Companies Kimberly Greenberger - Morgan Stanley Lorraine Hutchinson - BofA Merrill Lynch

Good morning. My name is Stephanie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Limited Brands Second Quarter 2011 Earnings Conference Call. [Operator Instructions] Thank you. I would now like to turn the call over to Ms. Amie Preston, Chief Investor Relations Officer. You may begin your conference.

Thanks, Stephanie. Good morning, everyone, and welcome to Limited Brands Second Quarter Earnings Call for the period ending Saturday, July 30, 2011. 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 second quarter earnings release and related financial information, including any non-GAAP or adjusted financial reconciliation tables, are available on our website, limitedbrands.com. Also available on our website is an investor presentation, which we will be referring to during this call. This call is being taped and can be replayed by dialing 1 (866) NEWS-LTD. You can also listen to an audio replay from our website. Stuart Burgdoerfer, EVP and CFO; Sharen Turney, CEO, Victoria's Secret; Andrew Meslow, Chief Administrative Officer of Bath & Body Works; and Martyn Redgrave, EVP and Chief Administrative Officer, are all joining us today. As you know, Nick Coe joined Bath & Body Works in July as CEO. He is still on-boarding and familiarizing himself with the business and will not be joining us on the call today. Many of you know Andrew, an experienced retail executive, who's been with Limited Brands for 8 years and at Bath & Body Works for 6 years. After our prepared comments, we will be available to take your questions for as long as time permits. [Operator Instructions] Thanks, and now I'll turn the call over to Stuart.

Thanks, Amie, and good morning, everyone. We are pleased with our record second quarter performance. Our adjusted earnings per share increased 33% to $0.48 per share versus $0.36 last year. Our reported result was $0.73 per share versus $0.54 last year. Though this and last year's reported results include significant items as detailed in our press release, this year's reported second quarter results include the following: a nontaxable gain of $147.1 million or $0.47 per share and a pretax expense of $113.4 million or $0.22 per share related to the charitable contribution of all of our remaining Express shares to the Limited Brands Foundation. This contribution allows us to fund the foundation in a very tax efficient manner. I won't repeat the 2010 significant items, which are detailed in our press release. All results discussed on this call exclude these significant items in both years. To take you through the second quarter results, as detailed on Page 4 of the presentation, net sales were $2.458 billion versus $2.243 billion last year and comps increased 9%. Our other segment revenue increased by $66.4 million or 26% to $324.4 million. Over 75% of the increase was driven by growth in our International business, particularly in Canada. The remainder of the increase is primarily attributable to the change in accounting for Mast sales to Express and Limited Stores. The gross margin rate increased 200 basis points to 36.7% primarily driven by leverage on buying and occupancy expense. The merchandise margin rate improved slightly despite a negative impact of about 60 basis points related to the increase in Mast sales to Express and Limited Stores, which are recognized at a 100% this year versus 75% last year. We will anniversary this accounting change in the third quarter. We continue to focus on managing total…

Thank you, Stuart, and good morning, everyone. Victoria's Secret segment earned record operating profit in the second quarter, and we are pleased with this result. This morning, I'll share with you the key drivers of our success. I'll then review second quarter financial results and end by briefly discussing how we're thinking about the third quarter. Let's begin with what we have been doing to deliver our results. We continue to stay focused on our core categories, bras and panties, supported by a culture that emphasizes getting faster and more agile every day. We've remained purposeful in our balanced approach between managing the business with optimism and staying conservative with our inventory and expense plans. We brought this together in a well-told brand story across channels. We told that story through innovative products, steady newness, the right fashion and excellent in-store and online execution. And finally, critical to our success is our customer connection. We work hard every day to stay close to her and deliver an emotional and positive experience with every interaction. Now turning to our financial performance. Our second quarter results are detailed on Page 13 of your presentation materials. In the Victoria's Secret store channel, second quarter comps were up 12%, and total sales were up 11% increasing to $1.064 billion. This result was driven by strength across the assortment. Our Lingerie business demonstrated balanced growth with bras, panties and sleepwear all performing well. We had a successful semi-annual sale, which resulted in higher sell-throughs and very clean inventory positioning heading into the fall season. Pink delivered a very strong performance with growth across the assortment driven by both base business and strong customer response to Pink's news. We also continue to improve the integration and coordination of our Beauty business with the balance of the…

Thank you, Sharen, and good morning, everyone. At Bath & Body Works, we are pleased with the results in the second quarter. We delivered sales and operating income growth versus last year's strong performance. We continue to deliver improved results versus strong performance last year by maintaining focus on 3 key categories: our Signature Collection product line, the Anti-Bac Soap and Sanitizer business and our Home Fragrance assortment. Performance improved on top of strong results last year in the Signature Collection, driven by the launch of the new fragrances like Into The Wild and the new Citrus collection. The Anti-Bac business continued to deliver growth driven by increasing fragrance, novelty and fashion newness in our PocketBac collection. And fragrance sales also grew versus strong performance last year and continue to be driven by candles and new seasonal fragrances, as well as growth in new forms of novelty in our Diffuser and SCENTPORTABLE categories. Transactions were also up versus last year driven by traffic and a continued improvement in our conversion rate. So with that backdrop, let me take you through the financial results for the quarter as detailed on Page 15. Bath & Body Works second quarter comps were up 4%. Total sales for the quarter were $563 million, up 5% or $27 million versus last year. For the quarter, our operating income was $70 million, up $6 million or 9% from last year and up 59% or $26 million from 2 years ago. Operating income as a percentage of sales was 12.5% in the quarter and up from last year. Operating income rate in the second quarter was driven by improvements in merchandise margin rate, while holding expenses flat as a percent of sales from last year. We also finished the quarter with inventory levels down from last year. We continue to drive inventories down year-over-year, while our in-stock positions continue to improve. The BBW Direct channel also delivered strong sales and operating income growth versus last year. Looking ahead to the third quarter. We will continue to introduce newness and innovation in both form and fragrance. This month, we launched our newest Signature Collection fragrance, Paris Amour, and we'll also continue to introduce novelty in our expanded Halloween Collection. While the Anti-Bac and Home Fragrance businesses have also introduced fashion and newness in fragrances and forms. We are cautiously optimistic about Q3, and we will continue to manage expenses and inventory conservatively. Our overall focus continues to be on getting faster and better at understanding and satisfying our customer needs while providing them with a world-class in-store experience. In addition to focusing on product and fragrance launches, we will continue to test and read the results of new product offerings and promotional strategies, while maintaining flexibility in our inventory to react quickly to our customer needs. With that, I'll turn the discussion over to Martyn.

Thanks, Andrew, and good morning, everyone. This morning, I will focus my remarks on providing an update on our International businesses. As you know, Martin Waters will provide you with more a complete update on our overall international strategy at our investor update meeting in New York on October 19. So I'll only hit the highlights today. Now one of those highlights is that we, along with our partners, continue to be very much on track to open approximately 130 stores this year outside of the United States. Taking a look at each of the businesses, let's start with Victoria's Secret's International business. In the second quarter, we opened 2 Victoria's Secret stores in Canada, in Toronto and Calgary, bringing the total in Canada to 6 Victoria's Secret stores and 8 Pink stores. These stores continue to do very well and are exceeding our sales expectations, and we plan to open another 6 locations in the fall. Our partners opened 6 Victoria's Secret Beauty and Accessories stores in the second quarter, bringing the total there to 24 stores. In addition, our partners plan to open another 39 stores by the end of the year. Sales productivity in these stores continue to be very impressive. And finally, we continue to be on track to open our flagship store on New Bond Street in London next summer. And we're also pleased to announce that we will open another 2 to 3 full assortment mall-based stores in London next summer as well. In summary, all of our Victoria's Secret stores outside the United States continue to perform very well, and we are very enthusiastic about the global opportunities for this brand. And next, turning to BBW. We opened 3 stores in Canada in the second quarter bringing our total to 62. These stores…

Thanks, Martin. That concludes our prepared comments and at this time, we'd be happy to take any questions you might have. Again, just a reminder, if you could please limit yourself to one question, and I'll turn it back over to Stephanie.

[Operator Instructions] Your first question comes from the line of Kimberly Greenberger from Morgan Stanley.

My question is for Stuart. Stuart, the quarter was so clean. The only thing here that stands out is the lack of SG&A leverage on such an impressive comp, and I'm wondering if you can just help us understand how to think about the SG&A leverage going forward. And should the sales plan exceed your expectations, are you expecting to ramp that SG&A number so that you're not really expecting any SG&A leverage as we work our way through the second half of the year?

On expenses, our view is consistent. And it's important to reiterate a few things and that is with respect to total expenses, the company has been and will continue to be very committed to growing expenses slower than sales. And as we were looking back at some things, we've done that for 7 consecutive quarters. And so that commitment is there, and it's in the results. And as you know, Kimberly our expenses are in 2 categories, in the buying and occupancy line and in the SG&A line. So with respect to the SG&A component of that, we are managing expenses within the quarter and a lot of the SG&A expenses do flex with sales. And we're making various investments that Sharen and Andrew could elaborate on, that we believe are customer-focused and improve the customer experience and are contributing to a very good experience for customers and translating through to the sales line. But with all that said, very focused on expenses growing slower than sales which they are. It's part of our path to '15 framework, which we're making good progress on. And specifically about your question, we do manage within the quarter in terms of that sales increase. We're making sure we've got the right service experience for the customer, so we put more hours in the store, for example, that's our biggest category of SG&A expense. And we do make other discrete decisions within the quarter that relate to top line results. And we think, overall, it's working pretty well.

Your next question comes from the line of Lorraine Hutchinson from Bank of America.

I just had a question on the other segment, there was quite a nice jump, an improvement in results both sequentially and year-over-year. And I guess, my question is why this quarter specifically did international accelerate so much? And then what do you expect the run rate of that line item to be going forward?

Thanks, Lorraine. We'll go to Stuart for that question.

So Lorraine, the drivers for the quarter were 2. One was growth in profitability from Mast, and that includes the Mast sourcing activity that supports our internal businesses, so Victoria's Secret stores and Victoria's Secret Direct in particular. And also profit related to our Canadian business in particular but our International business overall, those were the key drivers. And we would expect to see some improvement in the other segment in following quarters consistent with our guidance.

And just one thing that I'll add to that in terms of sequential improvement, we did call out in the first quarter that, that segment was negatively impacted by some onetime legal fees. So that was a negative impact from the first quarter.

Your next question comes from the line of Paul Lejuez from Nomura Securities.

On the topic of cost increases, just wondering on the other side of that, what sort of price increases you guys have taken, and what categories have you taken them? And if you could share anything with us in terms of the results so far, have you seen resistance?

Okay, Paul, we're going to go to both Sharen and Andrew for that question. We'll go to Sharen first.

First of all, as we have continued to add more fashion and newness in our product, we have seen price increases but because of the innovation that we're putting into the product. In terms of the basic product that we've seen price increases, we always go out and test before we do anything. And we have not seen any erosion in terms of our taking slight price increases. And it's very important for us to continue to balance unit and dollar growth in our quest to continue to drive more market share. Andrew?

Similar to what Sharen just described, at Bath & Body Works, we have seen some cost increases, quite a bit of it actually driven by the investments that we've made into our own products in terms of innovation as well. Similar to what Sharen described, Bath & Body Works is consistent about testing all those types of price increases that we might take to offset cost increases, as well as more primarily focused on making sure that the price value equation that we offer to our customers are appropriate for the investment that we make in innovation, newness and fashion. And as Sharen said, we also have not seen any resistance to those price increases at this point.

Got you. So Stuart, how do we tie that together with the merchandise margin assumptions for third quarter? And don't you also get a boost from anniversary-ing the change in accounting for Mast sales?

Paul, I appreciate the follow up because we want to try to make sure it's clear to everybody. The unique phenomena in the third quarter particularly and in the fall, to a lesser extent, is as we've talked about, the price increases generally are back-half weighted to the fall versus the spring, just based on the trend of input increases, including cotton and how that sell-through inventory, so back halfway consistent with prior commentary. And particularly in the third quarter, Paul, our Personal Care and Beauty side of the business mix is light. In the Pink business mix is heavy, in talking about percent of sales. And so as you would appreciate, the Pink and Victoria's Secret Direct businesses are impacted to a greater extent than Personal Care and Beauty on the cost side. And their portion of the business in Q3 is greater than for the full year and certainly for the fourth quarter. So there's a mix effect that impact the third quarter based on just the seasonality of the respective businesses is an important contributor to it.

And sorry, continuing on, does that mean we should expect merch margins up in the fourth quarter?

We'll give that guidance when we get it, but we think there's going to be some pressure and maybe down slightly in the fourth quarter, offset by leverage and B&O, so gross margin rate should be flattish with some ongoing pressure in merch margin rate.

Your next question comes from the line of Jeff Black with Citigroup.

Let's just stay on that line of thinking, if you don't mind, on the cost side. So, Stuart, you're saying the cost increases are really baked into the cake through 4Q this year? Could you just give us some clarity on that? And have you seen cost start to come down a little bit? And if so, given the way we're managing the Victoria's Secret business, might we be able to take advantage of that sooner rather than later?

Yes, our views of costs and our knowledge of our cost are fully reflected in our guidance. What we know about cost is included in our Q3 and full year guidance, so it's all baked in, to use your metaphor. And with respect to cost generally, again, guys, the most important thing about any of this discussion, which we started our commentary on at the beginning of the year is, while costs are important, and we're talking about it a little here in the third quarter because it has an effect, particularly in the third quarter, it's important to remember what this business is about, which is about differentiation, about emotional content, about creating value for customers, about speed and agility and more full-priced selling, which we're realizing. So I wouldn't want too much emphasis to be put on the cost side of the business because where we've created value for more than 40 years is through emotional content for customers, and that's what we're most focused on. Will there -- has the price of cotton come down? If we all look it up on the exchanges, yes, it looks like it's coming down, how that will affect our business, we'll see. But again, that's not what our primary focus is. It's about customers and emotional content, innovation.

Your next question comes from the line of Jennifer Davis with Lazard Capital Markets.

I have, first, a clarification, on the other segment income, did you book any upfront royalties or anything like that in the second quarter? And then my question is about the Victoria's Secret Beauty and Accessories stores, where are those 39 going to be opening? Is that in the Middle East and Turkey, or are they kind of other airport locations? And how are they structured? Are they franchise or licensed, or are they kind of the wholesale model? And how many stores do you think that you can open long term and how many annually in the future?

So on the other segment, Jennifer, there's not anything significant related to upfront fees in the second quarter results. There is not anything significant in Q2, any other segment on upfront fees.

Jennifer, it's Martyn. In terms of the Victoria's Secret Beauty and Accessories stores, obviously, we're signaling a large number of stores balance of the year, 39. And they will be distributed broadly across the globe, frankly. I mean, Asia, Europe, the Middle East, Turkey, South America even the U.S. actually. There's a couple of airport stores in the U.S. like JFK that are included in the total numbers that I'm describing. So we continue to see that as a concept that can travel well, not only in the airport, but potentially off-airport as we're starting to do more and more of -- and it really leads to the Victoria's Secret brand into the rest of the world. It kind of seeds the brand with customer, gives us a good read and react perception of how the customer is reacting to the brand, which has been fabulous. And we continue to see that as a big part of our way forward. In terms of the structure of the business, we are moving that business more and more to a traditional franchise structure, royalty-based. There will be continuous relationships that will be more in the wholesale model because of the duty-free operations in airports. But more dominantly, that will be franchise versus wholesale, and we see a great future for it.

And then Jennifer, I'd just add, in terms of how many we see annually either for next year or long term, we'll probably get more into that at our update meeting in October when Martin Waters will do a complete overview of our international strategy.

Your next question comes from the line of Stacy Pak from Barclays Capital.

I guess, my question is a little more on the international, the Victoria's Secret flagship and the mall stores around it. Are you thinking franchise or owned now? And how are you sort of thinking about those mall stores? How long are you going to watch, sort of what are the next steps from there? And then also La Senza openings here domestically, how are you thinking about that now?

We'll go to Martyn for those questions.

On the Victoria's Secret stores, that 2 new ones that I was describing for London, the best way to describe the mall-based stores is the equivalent of a full assortment A mall, large box store in the United States. And that's what we're looking to do as we expand in the U.K. in particular, those will be company owned and company operated in the U.K. For other parts of the world, we would plan as we've consistently said, to use a capital-light model and work through our franchise partners for instance, the Alshaya business in the Middle East.

So Martyn, does that mean Europe will be company owned and elsewhere in the world is franchised?

We have not made the decision on beyond the U.K. being company owned. That's still something that we're very much in the learning phase on. And as we've been consistently describing, we're taking a very careful test, pilot and then roll, country-by-country,relationship-by-relationship approach. And we feel that's the prudent and appropriate way for us to deliver our brands to the rest of the world. So no decision on Europe if there's a company-owned or franchised, and we don't have any other specific announcements to make about additional franchise, partner relationships at this stage. But again, as I've mentioned in my prepared remarks, we do plan to give a full and complete update on this with Martin Waters, head of our International business, in our October Investor Update Meeting.

Okay, and then just the La Senza?

In terms of La Senza coming in the United States, I think the first and foremost priority for us is the turnaround of La Senza in Canada. We see it as a future opportunity. It could be a potentially big and exciting opportunity. But our first priority is to complete the work that is in progress around the brand repositioning, the assortment repositioning and really making that brand into the kind of brand that we want it to be both from the sales productivity and profitability perspective in Canada, and then we will bring that to the United States.

Your next question comes from the line of Marni Shapiro from Retail Tracker.

Could you talk a little bit about the marketing as you go internationally for Victoria's Secret, what your partners are doing on the marketing side? Are they mailing catalogs at all? And if you can talk a little bit about your Catalog business here in the U.S. I know for the most part the Direct business is online, but if you've taken down your circulation, have you put those cost savings back into the online business or back in the overall marketing budget?

So we'll go to Sharen first for the Direct question.

What we think about our Catalog business, we really don't think of it as a separate business. We really think about it as one business in terms of the Direct channel. We continue to be more efficient with our catalog mailing, and we continue to re-invent that into our online strategy, both from a social perspective, as well as from a commerce perspective. So I think that we're pretty excited about some of the new things that we're doing in terms of re-staging our catalogs and how we're using them not only to drive the Online business, but really thinking about it, how it drives our store business as well from a one-customer perspective.

And then Martyn for...

Marni, in terms of the international marketing approach, I think again, the key is we're translating and delivering the U.S. brand as it is presented to the customer in the United States to our international customers. So that's the starting point, which means that we're using the marketing, the marketing calendar, the marketing visual, merchandising and everything else that comes out of the United States for BBW. Victoria's Secret Beauty and Accessories is an interpretation, obviously, of what VS is doing in the U.S. and then for La Senza, which is an ongoing position. Obviously, by geography, that marketing needs to be translated into foreign languages in some cases and needs to be sensitized to local practices and customs, for instance, the Middle East, so there are modifications that are being made as we provide those services to our franchisees.

Your next question comes from the line of Neely Tamminga from Piper Jaffray.

In terms of -- we've got a lot of cross-currents going on this week through earnings season and you guys taking up your outlook for August is completely commendable. I am wondering now if there's anything you're seeing in the underlying metrics, I'll ask this specifically to Stuart, in terms of traffic conversion that's telling you that she is acting differently this month versus last month? In a very related fashion, just a quick word from Sharen and from Andrew on behalf of BBW, what could you guys do if things do go a little bit south between now and, let's say, the end of September in terms of repositioning a holiday?

So Neely, I think we'll go to Sharen and Andrew actually for both of those. So first on what you're seeing in August versus previously.

Basically, the traffic -- Neely, it's Sharen. The traffic has been slightly down, really across the malls, and we were really seeing the benefit is to our conversion. I think that your question about how quickly can we respond to the market, one of our true focus is, is how do we really stay agile in terms of are open to buy, how we're positioning from a speed perspective, and we have all that in play to both maximize the upside, as well as to be able to balance our business if there's any downturn with the macroeconomics. We definitely know that it's unstable out there, and that's just how we're thinking about it. It's how do we continue to put the maximum amount of agility into the business. So we do have opportunities to be able to affect the fourth quarter. We're in the throes right now of testing big key items for holiday. So I think that we're trying to balance that conservatism and optimism as well as we can.

Thanks, and Andrew?

Neely, it's Andrew. So to your question on August, I would say for Bath & Body Works, the trend that we're seeing for August on traffic and conversion is similar to what we've been seeing in the past. We do have some timing differences this month, as I mentioned earlier, in the prepared remarks. We have launched a new Signature Collection fragrance, Paris Amour, this month that is incremental to last year, meaning we did not have one in August last year. And we are, so far, a few days into that launch. Very pleased with the performance we're seeing on all metrics associated with that launch. In terms of our flexibility for the back half, I agree with everything that Sharen said. In a similar way, we plan conservatively going into the season in terms of how we have inventory positioned. We have used our speed initiatives to get the flexibility to either chase with any upside or react in cuts with any downside. In a similar way, on promotional activity, we go into every season planning to essentially anniversary prior year promotional activity. And then as we get in the season, we are flexible to ramp that down if we see better performance in full price selling as we did in the spring season or if necessary if the macro environment were to worsen, we can obviously ramp that up as well. So again in a very similar way, a lot of flexibility to read and react in the season.

Your next question comes from the line of Michelle Tan with Goldman Sachs.

Just following up on some of the international questions, I was wondering if you could give us a sense of what the lead times look like for opening mall-based stores for you that are company-owned as opposed to flagships? So if these stores that you're opening next year in the U.K. really exceed your expectations, how quickly could you really ramp up that growth? How soon before we start seeing more U.K. stores open?

We'll go to Martyn for that question.

In terms of lead times, again, I'm going to retreat to a point I've made a couple times, one, we're in a learning journey. We're taking that journey in a very careful way, which is we're going to test things carefully, we're going to read and react to the results, and then we're going to decide whether we've got something that's working as we intended it to work, and then we're going to decide to roll out that concept wherever we're talking about going. So in the case of the U.K. stores, the mall-based stores will be more like a U.S. store, but it's the U.K., not the United States. So we need to learn about that. The lead times are similar to the U.S., all gated on the availability of the right site and the right place as it would be in the United States. And obviously, it's different than what a major high street flagship store like Bond Street would be.

Your next question comes from the line of Jeff Stein with Ticonderoga Securities.

I'm wondering, the franchise model internationally, are there wholesale sales that are being reflected on the other line? And has that been a material driver to sales and profitability?

The other segment includes all the -- both retail sales and the revenues as we recall, which would be royalties and wholesale revenues from the BBW, Victoria's Secret Beauty and Accessories and most Victoria's Secret store, Pink store businesses, the La Senza business is included in the Victoria's Secret segment. And so, yes, the revenues that are being produced from our expansion in the 130 stores that I'm describing that we'll open this year is all being reported except for the La Senza business in that other segment.

And has it been a material driver to sales and profitability?

It hasn't, Jeff. It has not.

In the aggregate, no.

Your next question comes from the line of Omar Saad from SIS (sic) [ISI] Group.

I know you guys don't have a crystal ball, none of us have a crystal ball, the market's down again huge today, there's a lot of volatility and negative headlines out there, could you just spend a couple of minutes reminding us, having just gone through, obviously, a very significant recession a couple years ago, what parts of the business do you feel most confident in and the positioning whether it's on the consumer side or the channels, whether it's Victoria's Secret or Pink, Bath & Body, the Direct business versus the In the Stores business or the Mast business, could you just help us, remind us, which parts of the company tended to hold up much better in the recession-type scenario? Obviously, we don't know if we're headed there yet.

And hopefully, we're not, Omar, but we'll go to...

Omar, it's Stuart. Why don't I take a start and then Sharen or Andrew may want to add in, as they're involved in the running of the businesses. But from an overall perspective, the management team here, CEO on down, we're focused on what we can control, and what we've been doing over the last 3 or 4 years in particular is focusing on a very few things that are fundamental and that matter to the customer. And so that's about newness, it's about fashion, it's about managing inventory with speed and agility, it's about managing expenses with discipline and flexibility, capital spending with discipline and flexibility, cash liquidity, all those things in a prudent thoughtful way, again, focused on what we can control. And that mindset hasn't changed. It served us well in the very difficult times in late '08 and through the early part of '09. And it continues to serve us well this year, and it's our game plan going forward. And so that's our mindset about it, focused on what we can control, and the focus on a few things that are fundamental and really matter to the customer. That's what's working in our business, and that will remain our mindset.

Your next question comes from the line of Randy Konik from Jefferies. Randal Konik - Jefferies & Company, Inc.: I guess this question is for Martyn, you kind of said several times, the use of partners for the international strategy. I was trying to get a sense of when you say the word partners, are we looking at -- how many partners? Or are you looking at a country partner strategy, continent partner strategy? And then are there similarities that you see in types of businesses these partners have? And then is there anything you can provide us with the economic model of this strategy with the partners not providing specific deal terms?

We'll go to Martyn.

Randy, and I'm going to go and promise to do more on this in the October investor update. I think obviously, there's a real desire for a deep dive on this, and we will do that in the October meeting. When we use the word partner, it obviously does define franchisee. It defines partners in the airport mall. We do like the word partner because we really do believe that people we're entering into these relationships with need to be our partners, and we need to be great partners to them. So regardless of legal form, we're going to use the word partners, and we intend to do -- expand through partnerships across the globe. And I think that's really all I would say for today, but we will kind of take you through more about the business, more about economic model of it as we see it growing and emerging in the October investor update. Randal Konik - Jefferies & Company, Inc.: Can I just follow up and ask, are you looking at more of a concentrated partner strategy per country, or are we looking at using multiple, multiple partners in, let's say, Canada or outside the U.K. and Europe?

The model might be what we're doing in the Alshaya relationship in the Middle East. We obviously, in our La Senza business, have multiple partners. But I think we would be more oriented towards concentrating on key partner relationships as opposed to hundreds of relationships.

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

As you think about the gross margin and the complexion of the gross margin, can you break out the complexion of it whether it's in terms of how the buckets work, merchandise margin, what you expect going forward? I know you had mentioned it earlier, is there continuity in that? And also the complexion of inventory in terms of unit and dollar gain, and lastly, just as you expand overseas, how do you see pricing from Victoria's Secret overseas as compared to the U.S.?

Thanks, Dana, so first couple of questions, we'll go to Stuart.

As we commented on in our prepared remarks and in some of the Q&A previously, there's going to be some pressure on the merchandise margin line in the back half of the year. And we expect to get some leverage on the buying and occupancy line also. And those 2 things largely offset for a flattish gross margin rate for the balance of the year. So that's our view, and we'll obviously work hard to maximize the results on a dollar rate basis, but that's our going-in assumption. With respect to inventory, 3 or 4 methods, some of it are not a bad thing, repetitious, I mean we're very focused on the management team here, very focused on it. With respect to growth, we expect flattish inventory per foot maybe up slightly by month but clearly well below sales results. So that discipline continues. Clearly, there are some differences between unit growth and dollar growth, depending upon what part of the business that you are talking about. We're not going to go into great detail about that, but there are some differences depending upon what part of the business you're looking at. And we look at that units and dollars all the time, both on a selling basis and on an inventory position basis. But again, I don't think meaningful to the overall understanding of how we're managing inventory. What's most important is we're clearly focused on growing inventories slower than sales, improving turn and continuing to get better at speed and agility, which we've made progress on, but we're working hard to make even more progress. We think there's a lot more opportunity.

Thanks, Stuart, and Martyn for pricing.

Dana, in terms of pricing overseas, I think, as you know, most international or global retailers have a variety of different pricing schemes country-by-country, kind of case-by-case. We would see it in a similar way, in Canada we're at parity pricing, plus or minus. In other geographies, we might have, as other retailers do, a price premium, 10% to 30%. But it's going to be case-by-case, country-by-country, and we'll test and learn our way through what the right price value relationship is for each country that we operate in.

Your next question comes from the line of Howard Tubin with RBC Capital Markets.

Maybe as we look into the fall season, maybe you could talk generally about the kind of new product launches that are upcoming. Just maybe relative to last year, will there be more newness, or less newness, or how does that look for fall?

Great, Howard, we'll go to Sharen and Andrew. Sharen, you want to go first?

Sure. We have newness plans throughout our fall calendar, and we're really excited about the products that we're introducing because they showcase really what are closeness is to the customer. And when I think about launch per launch, we basically have about 2 new launches between the Pink and the VSL than we had last year. Our marketing spend is primarily flat to last year. So I think that our constant quest to have freshness to drive traffic throughout the stores is something that you'll continue to see in the fall season.

Thanks, Sharen. Andrew?

For Bath & Body Works, it's a similar story. We absolutely believe that our continued focus on product innovation and incremental newness and fashion, as well as launches year-over-year is what drove our performance in the first half of the year, and we're continuing that strategy in the back half of the year. What that will mean is you'll see incremental launches and incremental fashion year-over-year, up in the 50% range versus what we saw last year.

Your next question comes from the line of John Morris with BMO Capital.

I'm wondering, so many questions asked, but wondering about some of the growth concept initiatives, in particular, VSX, it sounds like there's some interesting things going on there. So can you talk a little about the growth concept initiatives, progress, but particular attention to VSX?

Thanks, John, we'll go to Sharen for this.

As you know, we've always been very excited about the VSX business. But as we came through 2008, we really wanted to focus on our core business, which was the Bras and Panty business. And as we see better consistent growth, we are now actually testing more freestanding concepts this fall season in terms of VSX. So we already have one freestanding concept. We'll actually be adding 2 more. We have some side-by-sides that we are testing as well. So we do believe there's a big upside. But at the same time, we want to go slow to test and learn.

Great. Thanks, Sharen. That concludes our call this morning, and we thank you, all, for your continuing interest in Limited Brands.

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