Good morning. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the L Brands Second Quarter 2020 Earnings Conference Call. Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to turn the call over to Ms. Amie Preston, Chief Investor Relations Officer of L Brands. You may begin. Thank you.

Thank you. Good morning, and welcome to L Brands' second quarter earnings conference call for the period ending August 1, 2020. 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 and in our press releases. Joining me on the call today are Andrew Meslow, CEO of L Brands; and Stuart Burgdoerfer, Interim CEO of Victoria's Secret and CFO of L Brands. All results we discuss on the call today are adjusted results and exclude the special items described in our press release. Thanks, and now I'll turn the call over to Andrew.

Thanks, Amie, and good morning, everyone. The second quarter of 2020 continued to be an unprecedented time for the world, for the retail industry and for our business. Our first priority was and continues to be the safety of our associates and customers as we reopen the majority of our stores in the second quarter. We adopted new operating models in all of our stores that focused on providing a safe shopping experience. Additionally, we focused on our distribution, fulfillment and call center safety and maximizing our direct businesses. Overall, we delivered strong results in the second quarter, and we could not have done so without the hard work and dedication of all associates across our business: in stores, distribution and fulfillment centers, call centers and home offices. On behalf of the company, I'd like to express our deep appreciation for all of their efforts. During the second quarter, we also took a number of important steps to prepare Victoria's Secret and Bath & Body Works to operate as stand-alone, separate companies, improve L Brands' profitability, maintain liquidity during the pandemic and maximize our financial performance, all of which we outlined in the earnings commentary that we released last night. As we also discussed in last night's commentary, despite our strong results in the second quarter, we do expect results to moderate. And for a number of reasons, we have a cautious outlook for the second half of the year. We won't repeat those prepared comments this morning in order to leave more time for all of your questions. Thanks, and back over to you, Amie.

Thanks, Andrew. That concludes our prepared comments. And at this time, we'd be happy to take any questions you might have. [Operator Instructions] Thanks, and now I'll turn it back over to the operator.

Our first question will come from Ike Boruchow from Wells Fargo.

You mentioned in the press release about bankers being hired for the VS transaction. Can you give us an update on the timing of when you guys are... [Technical Difficulty]

So Ike, you cut out there a little bit, but I think we got the gist of that. So we're going to turn it over to Stuart.

So our view on our activities related to the separation of the businesses. First, as outlined in our circulated script in and as Andrew reminded us this morning, we took important steps to create or to facilitate stand-alone companies, Victoria's Secret and Bath & Body Works in the quarter. That was the organizational work that we did, taking many shared functions and creating -- or integrating those functions, I should say, into the respective businesses, Victoria's Secret and Bath & Body Works. We did retain Goldman and JPMorgan very recently shortly after the end of the quarter. And we'll begin work with them where they'll give the Board and the company advice about the range of alternatives and will assist us in a process as we move forward. Obviously, it's important to get a read on holiday results to value the business and to ensure that we strike the right balance in terms of timing, execution risk and getting an appropriate valuation for the business. And what the company is most focused on right now is driving great results at retail. So we got a lot of people in stores, distribution centers, home offices, vendor partners, all kinds of folks organized to provide the best results at retail. And I couldn't be more proud of what this team has done over the last 90 days or so through the organizational work, reopening stores, maximizing volume on the digital channel and the digital channel. So we're very focused on having the best holiday possible. It will be important as we go down this path. And it will be important and put -- as capital markets, advisers, potential buyers, again, the public markets assess the opportunity for Victoria's Secret. So very focused on having a good holiday, have hired some banks and took a lot of important steps to create stand-alone companies. Thanks, Ike.

Thanks, Stuart. Thanks, Ike.

Our next question will come from Matthew Boss from JPMorgan.

Great. And congrats on a nice quarter. On the expected moderation and trend for the back half of the year that you cited, have you actually seen a material deceleration in trend at either of your concepts to date? And coming out of the pandemic, curious, your confidence in Bath & Body Works in being a stronger business model. Maybe if you can touch on customer acquisition trends more recently.

Okay. Thanks, Matt. We're going to start with Stuart and then go to Andrew.

So with respect to very recent results, we have not at VS NewCo -- Andrew will speak to Bath & Body. We, at VS NewCo, have not seen any change in trend, any deceleration of trend over the last several weeks. I realize other retailers have reported on that. We have not seen that in the VS NewCo result.

So similar to what Stuart just described, Bath & Body Works had very strong and consistent results throughout Q2. And as we got more and more stores open through the end of the quarter, finishing with essentially the majority of stores open and sitting here now today in mid-August, we actually have all but about 40 stores reopened. We've continued to see very strong results in both our direct channel and our stores channel. And as we've moved into August, we've seen results continue to be very strong. In terms of your question around our future confidence in Bath & Body Works, I would say there are also, we have a lot of belief that our trend should be able to continue as a strong market leader in all of the categories in which we play. As you can imagine, as we've discussed in the past, one of the most critical questions we always ask ourselves is, are we, in fact, in the right categories of business. And are those categories that are still relevant to our customers and growing in the marketplace? And I think it's fair to say that in the case of Bath & Body Works, the answer to that question is a strong yes across our entire portfolio. Obviously, the soap and sanitizer business that historically has been 14% to 15% of the business is even more important to our customers and to all of the country right now in the midst of a pandemic. So as expected, we've seen tremendous growth coming out of that category. And while that may moderate over time, we expect that awareness around the importance of that category, washing your hands, using sanitizers when you're not able to wash your hands, will continue even as the pandemic itself hopefully starts to wane away. In terms of our other categories, we obviously have a huge and important body care business. That business has always been relevant to our customers, is even more relevant to her today as an affordable luxury, a way for her to treat herself even when she's unable or unwilling to spend money on perhaps other larger-ticket commodities. That is an inexpensive way, whether for self-indulgence or to give as a gift. And then similarly, our important home fragrance business that has grown substantially over the last half decade, also tremendously important to her, both now during the pandemic when we're using our homes as a place of work, a place of teaching and school and a place of refuge and solace. Certainly, making your home smell like you want it to is something that our customer has continued to express interest in and again, something we would expect to continue through the pandemic and also afterwards. So again, bottom line, categories that we're in, very, very relevant today, have been relevant in the past, and we absolutely believe are just as relevant to go forward. Hope that helps.

Great. Thanks, Matt.

Our next question will come from Simeon Siegel with BMO Capital Markets.

Congrats on the impressive results, even environment aside. Stuart, could you quantify merch margin versus occupancy deleverage within the 2Q gross margins? And then just higher level, you grew EBIT double digits despite top line declining 20% or so. How are you thinking about the opportunities to grow profits on smaller revenue base? Any general color on where you see that longer-term revenue size versus EBIT margins?

Yes. So Simeon, there was substantial rate expansion on merchandise margin of -- I'm speaking for LB in total, substantial merchandise margin rate expansion in the second quarter versus last year. And there was some deleverage in total in B&O. So one, it was very favorable. There was deleverage and the 2 effects netted to an overall gross profit rate that was about flat so -- to last year, but very significant expansion in merch margin and deleverage in B&O related to both the store channel and some in the direct channel as well, netting to about flat.

And then -- sorry, Simeon, what was the second part of your question?

Any help on how you think about the revenue size versus EBITDA margin in whether LB or either of the concepts? I mean it was just very impressive to see that EBIT growth despite the revenues declining.

Well, we took a lot of actions, obviously, to manage expenses, Simeon, and we took difficult decisions about expenses related to the store channel specifically. And then separately, as it related to home office overheads and marketing spending, we clamped down pretty hard, as you would expect us to in this environment. And a big part of the result was the difficult decisions we had to make with respect to store operating costs, including store payroll, but we're glad that we've been able to reopen the substantial majority of our stores as we move forward, and we'll continue to manage expenses with discipline. But what you saw in the quarter was very substantial actions that we took and I think generally, what the industry took. But we were quite focused on it and tried to make the right decisions for the business to ensure cash flow and reasonable profitability in the environment, and that's how I'd characterize it.

Our next question will come from Lorraine Hutchinson from Bank of America.

I wanted to follow up on some of the more cautious comments you made in the prepared remarks, in 2 pieces really. First, you talked about some capacity constraints. Can you just discuss any efforts that you're making ahead of time to try to enhance your capacity to get ready for these peak volumes? And then second, on the costs, obviously, you'll see some incremental COVID costs in the back half. If there's any help you can give us on quantifying that?

Thanks, Lorraine. Andrew?

Thanks, Lorraine. So in terms of your question around capacity, again, there's capacity in both of our channels in terms of our stores channel and our direct or online channel. On the online channel, we have obviously been experiencing holiday-like volumes really since the start of the pandemic. And what that has meant is that we have substantially ramped up our fulfillment center capacity even while needing to run those fulfillment centers in a way, as we mentioned earlier, very consistent with our overall focus on safety protocols. And as you might expect, that puts some constraints on throughput and other productivity measures in those centers as we have to apply social distancing and other parameters in those centers. That said, we are very pleased with the ramp-up in capacity that we have already achieved in both Bath & Body Works and Victoria's Secret. And as we move into the back half of the year where volumes continue to grow, we are also on track to increase capacity even further across both networks. So feeling like we're in good shape there. But obviously, anytime there's a concern around an outbreak, that's something we have to monitor and take appropriate actions. And so again, we are cautiously optimistic that we have procured and are using capacity wisely. When you think about our stores channel, in some ways, it's a similar constraint in terms of the number of customers that we're able to actually allow into the stores at any point in time in order to, again, be focused on safety as our key priority as well as then our ability to process customers through our cash registers and lines within stores. As we've reopened stores, we started off with -- I'm speaking now for Bath & Body Works, a store opening…

No. I think -- I mean, as we've talked about together, Andrew, I think that covers it. And I just would put emphasis on -- you said it, I just put emphasis on the store capacity dynamic in the critical holiday period. And Andrew described the things that we're working on, and we are really working on them. But our priority is to keep associates safe and customers safe, which gets to metering of traffic, and sorting out the balance on that capacity in that critical period is key. And we talked about in our remarks that we'll be working to try to spread demand to other time periods to serve customers with -- providing them with the things they want and enjoy and also to just practically spread out the business to deal with some of those constraints.

Great. Thanks, guys, and thanks, Lorraine.

Our next question will come from Alexandra Walvis from Goldman Sachs.

I wonder if you could update us on the planned time line for the closures at Victoria's Secret. And on a related topic, I think you mentioned in the press release that you're expecting to recapture around 30% to 40% of the sales at those closed stores. Can you talk a little bit about how you're getting to that number? Does that -- is that consistent with the types of recapture rates you've seen historically when you've closed stores? Are you planning for that recapture to mostly take place in other stores or online? And do you see the risk that online traffic could fall a little in those areas as you close stores? So any color on that would be really helpful.

Sure. And thanks for the question. So the store closure activity for Victoria's has been largely complete. Not fully complete, but largely complete. We remain comfortable with the estimate of about 250 stores closing this year in North America. The difference between largely and fully is we have some ongoing dialogue with landlords, property owners, developers on some of these situations. And so not all those -- not all 250 are fully resolved. But again, we remain comfortable with the estimate and an important decision for the business, as you appreciate. With respect to sales transfer, as you would also intuit or understand, there is a range of outcomes. We remain comfortable with the 30% to 40%. A portion of that, as the minority portion, call it, 5% I'm generalizing, is going to the digital business, the balance going to nearby stores. As you would understand, the specifics vary by trade area. So a lot of this gets down to shopping patterns, traffic flows, et cetera, in trade areas. It's how we look at it. And lastly, Alex, you asked if the roundly 30% to 40% is generally consistent with our past history. And the short answer to that question is, yes, and so we've done more testing on this a year ago. As we got somewhat more aggressive with closures last year, we learned more. We had experience prior to that. But again, what we're seeing is that 30% to 40% range, again, expecting that activity to be EBITDA and profit-neutral as we move through, and we think a healthy thing for the business. We all know what's going on in retailing generally. And for the VS NewCo business, we believe this is an important step, a good step for the long-term health and profitability of the business. So that's where we're at.

Thanks, Alex.

Our next question will come from Jamie Merriman from Bernstein.

As you think about ramping up capacity for e-commerce for Bath & Body Works and into holiday, how do you think about leveraging cost there? Does that put any limits on it? And as e-commerce grows as a percentage of sales for BBW, do you see any investments on the horizon in terms of the digital platform or capabilities that you need there?

Thanks, Jamie. Andrew?

Jamie, thanks for the question. So on your first question in terms of the capacity ramp-up, obviously, we are making any and all investments required in order to procure that capacity. That means working with more fulfillment centers than what we had at this time last year or even at the peak of holiday. We're already operating with more centers this year than last year by about 2x, and that magnitude will continue as we move through the rest of the year. In terms of the other investments being made into those centers, obviously, I described many of the investments associated with safety and making sure that we have adequate protocols, PPE equipment as well as labor in those stores. Those are really the investments that we'll be making from a capacity standpoint. From a -- your question around the percent of sale for Bath & Body Works direct and other capabilities that we're looking to add to the direct business over time. I think it's important to just reground ourselves on where has Bath & Body Works online historically been as a percent of the total business. So it finished 2019 at just under 20% of total revenue for the Bath & Body Works segment but had been growing rapidly over the past several years: over the prior 5 years, compounded average growth rate in the high 20s and the prior 2 years, 2019 and 2018, growing at about 30% per year. So already a large and fast-growing portion of the business. That said, as you would have seen in our materials released last night for the spring season to date, the first 6 months of the year, Bath & Body Works direct was about 42% of revenue, obviously, peaking in the time frame that stores were closed. But…

Thanks, Jamie.

Our next question will come from Matthew Degulis from KeyBanc.

So with inventory receipts being down 50% at VS and digital doing well, can you talk about how you're planning the balance of inventory between stores and digital? And I guess asked a different way, how lean can you keep stores relative to what stores were in the recent past and keep the full VS experience for shoppers?

So why don't I take a crack at that? It sounds like your curiosity is mostly on the Victoria's Secret side. It's Stuart. So over the last several years, the inventory levels at Victoria's and the need to promote based on consumer response to what we were doing, not being as strong as we would have hoped, has been high, meaning we've been somewhat overbought over the last 2 or 3 years. I'm speaking generally. It's varied some by line of business and by category. With that said, the pandemic actually creates a real opportunity for us in the positive sense to make a substantial change in the profile of inventory purchases, which we've outlined. That, in combination with what we do believe as being closer to the customer and delivering better fashion and newness, better merchandising fundamentals around good, better, best, basics with Greg, Amy and John's leadership in those areas as the key merchant leaders in the business. The combination of those things gives us a real reason to believe, along with some focus on getting the cost balance in line, that we've got a real opportunity to deliver good experiences to customers and substantially improve the profitability, the merchandise margin rates in the business. Obviously, being appropriately in stock for the customer in core categories and key sizes is a fundamental and something that needs to be. And we will remain very focused on delivering a good experience for her. So we understand the importance of that. We're managing that well. But really the need to fundamentally become much more conservative on the inventory buy or the purchases, again triggered by the pandemic, has a silver lining to it in that it provided a real clarity to the organization about buying much more conservatively and then chasing in the business when the trend was, in fact, there. So that's where we are. We understand that being in stock is important. But in terms of overall turn in the business, importantly, in certain categories, we were turning reasonably well or at a level that we're very comfortable with. And in other categories, we had meaningful opportunity to improve the turn in the business. And again, the combination of everything I've just described, I think, is going to get us to a much healthier balance between inventory levels and purchases and the underlying demand. So that's where we're at on. Thanks.

Great. Thanks, Stuart.

Our next question will come from Roxanne Meyer from MKM Partners.

Great. My question is on Bath & Body Works. I'm just wondering if you can talk about how you're planning inventory for the holiday, what your ability to chase into trends looks like? And also your approach to the gifting strategy at Bath & Body Works, whether you're going more after packaged gifts or make your own or anything big that we should think about in terms of strategic changes there.

Thanks, Roxanne. So as you can imagine, we are absolutely going to be relying very heavily on the agility and flexibility that our supply chain for Bath & Body Works allows us as we move into the back half of the year. Again, because we don't know -- it's a very wide range of outcomes that are possible. And so we want to be able to absolutely chase to the upside if we're able to continue a trend more like what we've seen year-to-date, but also use our agility as we have historically to also cut back if, in fact, things don't materialize to the level that we would expect them to. So as a reminder, the Bath & Body Works supply chain is almost fully a domestic supply chain, and a lot of it is actually produced right here in central Ohio. And so that gives us, again, tremendous flexibility and agility. And allows us to, as you mentioned, really chase into trends. So in our vernacular, maximize winners and minimize losers or things that end up performing worse than our expectations. The ability to do that has been a critical part of our historical success, and we're absolutely relying on it already through the first half of the year because we were surprised to the upside in the second quarter. And so Bath & Body Works had originally cut back pretty substantially on receipts at the beginning of the quarter, but we were able to successfully chase back into receipts through the quarter in order to meet our demand that exceeded our expectations, and we would expect to be able to use that same flexibility and agility in the back half. In terms of your question around gifting strategy and specific assembled gift sets versus more open stock…

Great. Thanks, Roxanne.

Our next question will come from Susan Anderson from B. Riley FBR.

Nice job managing the quarter. I guess, first, one clarification just on the performance you talked about quarter to date. Is that from July or, I guess, from the total performance you saw in the quarter? And then as it relates to VS, it seems like there's some stabilization going on there, though, a little bit muddled given the pandemic. Can you maybe talk about the drivers of the performance? I guess what's working now versus historically? And then the 250 stores you'll close this year, are there any thoughts around how this is going to impact profitability? And the retention rate of sales you expect either online or at other stores.

Thanks, Susan. We'll start with Stuart.

So in terms of is Victoria's Secret stabilizing, I think in many respects, it is. Earlier in this call, we talked about the benefits of a more conservative posture on inventory purchase levels, how aggressive we're buying and how that has an effect on promotional activity. So that's been an important change. It's starting to bear some fruit. I talked about the work that Greg, Amy and John are doing in beauty, PINK, Victoria's, lingerie and the fundamentals that they're pursuing in terms of merchandising fundamentals, easy things to say, but hard to do, really gaining some traction and seeing across all major categories healthy average unit retail growth and meaningful margin rate improvements, which is certainly indication of a better, stronger response from consumers with respect to what we're selling. We are implementing a profit improvement plan that we've talked about. A lot of that benefit relates to the Victoria's Secret NewCo business. But with all that said, we got a lot of work in front of us. We're -- the businesses results have declined substantially over the last few years. We're not, in any way, out of touch with reality about where we are. But with that said, and in the spirit of your question, I sense a real stabilization. And with the combination of actions that we're pursuing and that we've talked about, I see the opportunity for that stabilization and then for resuming to a pattern of growth, most importantly at retail in terms of top line and margin dollars, again in combination with the cost-rationalization actions that we've pursued. Maybe lastly and a lot into the -- in my response, but it all is -- all these factors matter. Amy has done important work on the PINK brand positioning. John is doing important work on the Victoria's brand positioning. Some of the changes, one might argue have been subtle so far, but we have indication that the consumer is noticing those changes and those are important changes, and there's more to come on both those things. So we've got a lot in front of us. Again, we're not confused about where we are. You put that in combination in operating in an environment that's a pandemic, with the effect of closing stores and the earlier conversations around store capacity and so on at holiday. But feeling like the business is stabilizing and that we're creating the platform for growth. So that would be my perspective on Victoria's. Thanks.

And Susan, you did say that the closure of the 250 stores, we expect to be neutral to profitability. I'm not sure we understood your question about quarter-to-date versus July? Or I wasn't sure what you meant by that.

Yes. Just in terms of -- it doesn't sound like you've seen any weakness from back-to-school or anything. Like the trends have continued, I guess. I was wondering if that was from July, just given I think there was maybe some variances from the beginning of the quarter to the end of the second quarter.

Yes. No, we had consistent business throughout the quarter, and that has continued so far into August.

Our next question will come from Omar Saad from Evercore ISI.

A quick follow-up on BBW, the plus-87 store comp or open-store comp, obviously, we assume that slowed as more and more stores open. I think 98% of the stores are open now. Is there a way you can kind of put some guardrails on how we should think about how the stores are operating kind of on an ongoing basis? And then Stuart, would you mind kind of addressing quickly as you do more BOPIS and curbside, the margin differential in those types of transactions versus pure traditional e-commerce?

Thanks, Omar. We'll go to Andrew, actually, for both those questions.

Yes. So thank you, Omar. In our prepared remarks last night, we talked a little bit about what were the factors that we thought certainly helped benefit the strong positive comps that we did see as stores opened. So again, to reiterate what those were, obviously, when you have a very small number of stores open in the early part of the quarter, as a reminder, we -- for Bath & Body Works, started the quarter with only 23 stores reopened in North America. And we gradually increased that number by about 50 a week through May, about a couple of hundred a week through June and then down to about 100 a week through July to get to that essentially fully reopened as we sit here now in mid-August. But as you would expect, when very few stores were reopened and only a couple of stores in each market early in the quarter, we obviously saw a tremendously high comps out of those locations as they were drawing from a multiple store trade radius. Obviously, in our categories, too, which is a use-up category, where if you're loyal to our products, whether again that's soap or body care or home fragrance, you tend to, if you're using it every day, go through it in about 4 to 8 weeks, depending on the product category, which means as stores were closed, there was clearly some pent-up demand. And while some customers did move their purchasing online, many customers waited for our stores to reopen. And so we certainly felt some of that impact as we reopened. And then also, as mentioned, obviously, industry-wide, there's a tremendous demand for soap and sanitizers. And so we certainly felt the benefit of being a strong player in that category. All of that said,…

Thanks, Andrew. Thanks, Omar.

Our next question will come from Kimberly Greenberger from Morgan Stanley.

Great. Andrew, I wanted to ask about the capacity -- store capacity that you're talking about at Bath & Body Works. I think you indicated that as a result of social distancing, that you had capped your capacity at 30% of max right now in Bath & Body Works stores. Does that continue into the third quarter? And what percentage of revenue -- so we understand the foot traffic is at 30% of max capacity. But what percentage of last year's revenue can that low level of traffic capacity deliver in your stores? I would assume that it's materially better than that. But I just wanted to see if you could help us understand how the traffic capacity limits translate into store-only revenues at this level.

Thanks, Kimberly. So that's obviously a lot of complexity associated with that answer or with that question. So I'll try to directionally answer hopefully in a way that's helpful. So again, when we're speaking in terms of metering traffic or number of customers in the store, the percent capacity that we're talking about there is generally a capacity that's given by local authorities around what would the fire marshal, for example, say, is a safe number of people to have in the store at any point in time. And we've pegged that 30% directionally number due to really looking at what does that allow for in terms of social distancing of associates and customers throughout the store. So obviously, in many days of the week and many times of the year, that's not a problem at all, meaning that even at a 30% capacity, we don't -- that doesn't create a line outside the store at all. But at other times of the year, in the peak of holiday, that's obviously what we're looking at and trying to figure out. So in terms of that number itself, we certainly will be continuing to test and monitor. That, again, the priority is safety. So we're not going to make any changes to that if we think that requires us to compromise on safety and social distancing. But certainly, we are continuing to monitor to see if that number is right. The other part of your question was around modeling. What does that allow us to do in terms of covering last year revenue? So obviously, in the second quarter, even with those parameters in place and even more stringent parameters in place earlier in the quarter, you saw that, obviously, there was no constraint in terms of our ability to maximize revenue in the stores. Traffic into our locations in the second quarter was down. It was down in the high single-digit range. There was some differentiation of that traffic between mall stores and non-mall stores. It was down more in mall stores. It was actually up in non-mall stores driving a performance differentiation between those locations. But the other parts of the selling equation were up dramatically: so conversion, up in the 30% range; and average dollar sale, up in the 40% to 50% range, so way more than an offset, obviously, to that traffic decline. And we will be relying on those metrics to continue to drive performance as we move into the back half. The combination of those things obviously means that the dollar generated by every footsteps into our store is up dramatically, up basically double to last year, if that's helpful.

Great. Thanks, Andrew.

Maybe, Kimberly, just to add on a little bit or to further emphasize what you're trying to envision. We are -- how many people can you fit in the store safely, right? And if we think about in Bath & Body's case, base case run rate, 40% to 50% conversion rates, right, generally. And at Victoria's, let's say, 30% conversion rates. How do you think about lookers versus buyers, right? And what do you see in terms of conversion rates and dollars per footstep? That's a key part of what we're trying to sort out, what Andrew was describing. And what we've seen so far is a substantial increase in dollars per footstep, right? So it's a complex thing. You're trying to sort out physical capacity in your question, I think. And then there's another aspect of what's the nature of that visitor to your store, right? And what is she doing? And how many people are with her? And what's her intent to buy, right? So it's complicated beyond just how many people can fit in the store.

Thanks, Kimberly. We're running a little short on time here. We have lots of people left in the queue. So let's try to ask only one question, and we'll see how many we can get in here.

Our next question will come from Jay Sole from UBS.

My question is about Bath & Body Works International and the partner-owned stores. How are you thinking about the growth potential in that business from the roughly 285 stores or some odd this year? What countries do you see it from? And is there anything about the separation, which will cause a change in that business' growth potential and how you're managing it?

Thanks, Jay.

Thanks, Jay. Yes. So as we've talked about in some prior calls, the BBW franchised stores around the world outside of North America is a very nice business model, very successful and profitable business model that has seen nice growth over the last several years. Obviously, the pandemic had an impact on that business, just like it had an impact on all of our businesses. But similar to the U.S., the rest of world franchise partners are now largely reopened in terms of locations around the world and also were able to very successfully shift business to online in all of their markets as well. So when we think about from a future potential opportunity, again, that franchise model, which is a low-capital, capital-light investment with a lot of potential upside, is something that we absolutely do believe over the next several years we will want to expand further into additional geographies. Because, again, we have seen it perform well essentially everywhere we've gone. In terms of specifics around that, again, in the midst of still figuring out 2020 and operating safely, we're not going to speculate on what that will be go forward. But certainly, an important profitable business and one that we do see with growth potential go forward.

Thanks, Andrew. Thanks, Jay. Let's try to get 2 more in here.

Our next question will come from William Reuter from Bank of America.

My question is just on the marketing savings. How much you achieved during this quarter? And then will you continue to keep your marketing expenditures at lower levels in Q3 and Q4? Or since stores are open, are you going to increase some of the historical levels? That's it.

Thanks, Bill. We'll go to Stuart.

Bill, short answer is they'll return back to more typical levels. So we pulled back on a lot of stuff, as you could understand, but they'll return to more normal levels as we move into the holiday period.

Great. Thanks, Bill. One final question.

And our last question will come from Paul Lejuez from Citi.

I'm sorry if I missed this, but can you talk about how the soap, sanitizer business performed during the second quarter? And also, what percent -- if you look at it this way, what percent of transactions included a soap, sanitizer item compared to the first quarter and maybe the -- versus the same quarter a year ago?

Paul, it's Andrew. So I did mention earlier that we obviously saw a very strong performance out of our soap and sanitizer category. Directionally, that business last year, on an annual basis, was 14% of the business. In the first half of the year last year was in that same 14% to 15% of the business range. And this year, in Q1, it was about 25% of the business. And in Q2, a little higher than that. But in terms of percent of transactions, I don't think that's something we historically have talked about. But safe to say that customer engagement into that category has been very high. And so as it's grown as a percent of sales, it's seen a comparable growth in terms of customership into that category and certainly a business that we remain very bullish on into the future.

Okay. All right. That concludes our call today, and thank you for your continuing interest in L Brands.

This concludes today's conference. All participants may disconnect at this time. Thank you for your participation on today's call.