Good morning, my name is Laurie, and I will be your conference operator today. At this time, I'd like to welcome everyone to the L Brands First Quarter 2016 Conference Call. .

I will now turn the call over to Ms. Amie Preston, Chief Investor Relations Officer for L Brands. Please go ahead. .

Thank you. Good morning, everyone, and welcome to L Brands' First Quarter Earnings Conference Call for the period ending Saturday, April 30, 2016. As you know, we released detailed commentary last night, which is available on our website.

Given the shorter length of our call this morning, we will make some brief introductory comments in order to allocate more time to your question..

As a matter of formality, I need to remind you that any forward-looking statements we may make today are subject to our safe harbor statement found in our SEC filings. Our first quarter earnings release, additional commentary and earnings presentation are all available on our website, lb.com..

Stuart Burgdoerfer, EVP and CFO; Nick Coe, CEO, Bath & Body Works; and Martin Waters, President of International, are all joining us today.

All results that we discuss on the call today are adjusted results and exclude the 2016 pretax charge of $34.5 million or $0.07 a share related to the actions at Victoria's Secret and the 2015 pretax gain of $78.1 million or $0.23 per share related to the sale of our remaining interest in the third-party apparel sourcing business. .

Thanks. And now I'll the turn the call over to Stuart. .

Thanks, Amie, and good morning, everyone. Although we delivered first quarter results above our initial expectations, we were not satisfied with our overall results as adjusted operating income declined 4% compared to last year, primarily driven by a decline at Victoria's Secret. .

We had a range of performance across the company in the first quarter with PINK and Bath & Body Works delivering strong results and weaker performance at Victoria's Secret Lingerie and Beauty. .

From a macro perspective, we did experience a deceleration in trend through the quarter, but we are focused on what we can control, and we have opportunities to improve our execution.

It's important to note that we have made significant changes in the last couple of months at Victoria's Secret, making organizational and leadership changes, exiting merchandise categories, exiting nearly 300 people from the business and changing our promotional strategy.

We're making these changes proactively from a position of strength and following a record fourth quarter and 2015 for the brand..

Our revised outlook for 2016 reflects the impact of the actions at Victoria's Secret as well as incremental cost related to our plan to develop China as a company-owned business. Our brands are strong, and we're energized about our opportunities for growth.

We will continue to leverage speed in the business and be flexible and agile in our approach in order to maximize profitability. .

With that, I'll turn the discussion over to Nick. .

Thanks, Stuart. So I think the only comments I would add from the notes that went out last night is, I've spent a fair amount of time in the stores over the course of the past few weeks, so I'll comment on those observations. .

I think, firstly, we remain pleased with the traffic and the energy that we're seeing in the stores. Secondly, we appear to be keeping customers pretty engaged through the newness and the compelling stories that we're telling, which is really important for us when you think about the destination brands.

So we really need to continue to keep her engaged. .

Thirdly, for the most part, pretty pleased with customers' response to products and assortments and our collections. I think we can do better, but pretty happy from that perspective.

As it relates to speed, really pleased with our ability to have been able to leverage the speed model into our ability to chase in the home business, and that's been important for us, not only because it's the most difficult business to chase into, but also because it's still a very, very healthy business for us. .

We're pretty pleased in terms of what we're seeing from the real estate investments and the type of return that we're getting there. So again, we're relatively pleased with what's happening then we'll continue to monitor that and read and react as we would.

And then, finally, as we see the marketplace remains pretty dynamic, we'll continue to leverage our most important discipline, which is really the notion of staying as close as we can to the customer and then reading and reacting to her behavior. .

I'll turn it over to Martin. .

Thanks, Nick. Good morning, everybody. As you would expect, I've been spending quite a lot of time in China recently, which we will now pursue as company-owned.

Although there's still much to do, I'm really enthused about the teams that we put together for China and the progress that we've made in readiness for the launch of our full assortment stores at the end of this year and also, our direct-to-consumer business, which we'll open later this year in China. .

I'm also very focused on growing our existing businesses in the U.K., which have been good, and in the Middle East, which have been tough recently as well as on improving performance in the VSBA business. .

All in all, I feel good about our prospects for growth and of course, remain focused on the fundamentals, which is all of that great execution of our brands wherever we go in the world. .

Amie?.

Thanks, Martin. That concludes our prepared comments this morning. And at this time, we'd be happy to take your questions. [Operator Instructions].

And Laurie, I'll turn it back over to you. .

Your first question comes from the line of Matthew Boss of JPMorgan. .

It's Christina Brathwaite on for Matt. Thanks for taking our question. Just with the goal of replacing the swim and athletic apparel merchandise, can you just walk through some of the puts and takes of exiting those businesses on this year? And then any kind of this [ph] pressure that you're expecting in the SG&A reduction will be helpful. .

Thanks, Christina. We'll go to Stuart. .

Sure. I mean, the rationale, first of all, for the category exits is to focus our energy at all levels of the business, our resources at all levels of the business on our most significant core categories, bras, panties, beauty in the Victoria's Secret business.

And we made a conclusion -- came to a conclusion that this one business was not one of those core categories that had been a flattish business for the last several years, many years. And we're putting our energy against those core categories to accelerate growth in bras, panties and beauty.

It is going to put some pressure on the business, along with some of the promotional changes that we're making, less direct mail couponing, et cetera.

But as you outlined in your question, we have some expense savings that we've actioned as well including the elimination of the catalog spend and a meaningful reduction in our home, office overhead, which, in part, offsets the sales and profit pressure from the category exits and the impact of the promotional changes that we're implementing.

But at the end of the day, as outlined in our commentary that we sent out last night and the brief remarks we made this morning, we're making these changes from a position of strength to accelerate growth in these core categories. And there'll be some short-term financial pressure, as outlined in our guidance, both for Q2 and the full year.

But we'll then work hard to beat that guidance, as you would imagine, and we're absolutely confident that these changes are the right thing to do for the long-term health of Victoria's Secret, and again, to accelerate growth in that business. .

And Christina, I just want to clarify something in your question. You'd said that we were exiting athletic apparel. That's actually -- what we are exiting is apparel that we are now selling in the direct channel that is not carried in the stores. So it's things like t-shirts, sweaters, boots, for example.

So we're still very focused on growing our sport and athletic business. .

Right, I misspoke.

I think I was trying to say are you replacing the athletic apparel or building that -- or replacing it with more additional athletic apparel?.

Yes, again, we're not exiting athletic apparel. Just to be clear, we're not exiting athletic apparel. Believe strongly in the sport category. Our primary focus in that category is in sport bras, but we sell a lot of sport pants and related sport merchandise.

And we have strong belief in that category, and we're realizing good sales growth in that business. So we're exiting nonathletic, nonathletic apparel in Victoria's Secret Direct that's not carried in the store. .

Your next question comes from the line of Brian Tunick of RBC Capital Markets. .

I guess, 2 questions. One, I guess, Stuart, do you view 2016 being the resetting year? Or do you think there's potential, more pressure in 2017? I guess, do you think you can grow earnings again next year? And then the second question really is on the expected traffic impact on pulling back from these promos.

You've mentioned macro a lot in the script. And just wondering what's going on in the core lingerie business, yet you feel confident you can pull back on some of these promos and still drive improving comps. .

So Brian, I appreciate you asking the question about kind of is 2016 a reset year and then how do we think about 2017.

One of the things I love about working for our company and Les' point of view most significantly, but the leadership team, our point of view, is that while we've reset guidance and I'm not altering that guidance in mindset, this isn't a reset year at all.

So we're going to have some challenge in the near term, and we've done our best to outline that in our guidance. But I'll tell you, starting at the top and with some acknowledgment of short-term pressure, we're going to work very hard to exceed that guidance and in no way do we have in our mind that 2016 is a kind of a reset year with no growth.

Again, the guidance is the guidance. But you should know and known us for a long time, our mindset is we're going to work very hard to drive great experiences for customers, very strong sales growth and resulting profit growth. So I'm glad you asked the question. And obviously, from that, expecting a very good 2016 after some short-term pressure.

Again, the guidance is the guidance. And then certainly expect a very, very good 2017. So good question. With respect, Brian, to the traffic generated from direct mail couponing, we're working hard to replace that volume and that profit.

And again, we're doing it for reasons that I think you appreciate from our earlier remarks in terms of doing promotion that drives trial in key categories. And at the end of the day is healthier, we believe, for the business.

But in the short term, it's challenged, but we're doing a lot of things in terms of tests and rolling different ideas to ensure that we have healthy traffic and good sales results.

And that will be a week-to-week, month-to-month exercise, but it's being very actively worked on Mondays and Tuesdays every week and with good test and learning and adjustment. Again, another thing I really enjoy about the company and respect about the company is that we test, we read, we react, we are agile in our thinking and in our execution.

And it's more dynamic right now than typical, no doubt about that. But I'm confident that we'll read and react and adjust appropriately. .

Your next question is from Richard Jaffe of Stifel, Nicolaus. .

I guess, a 2-part question. The lost sales you described of $525 million, could you just give us a sense of how that will break out apparel and shoes from the direct channel and the swimwear from both direct and stores? So the impact on stores versus direct.

And then if you could just comment on how this is different from 2014 when you consolidated the store with the catalog and eliminated a number of merchandise categories at that time. .

Yes. So the biggest component of that, Richard, thanks for the question, is the swim business, and it distorts or mixes higher to the direct channel versus the stores channel.

The apparel that we're exiting that we've commented on already on the call that was solely indirect and the swim business was larger in the direct channel than in the store channel. I'm not going to go deep on numbers. But directionally, that would be the way to think about it and that's how it frames.

Was there a second part to his question?.

Yes, how it's different from 2014. .

Thank you. So what's different about this versus the earlier exits, Richard, is that truly now, with these changes, we will only sell merchandise in the direct channel that's sold in the store.

And while we made important exits as we all remember earlier, we still had merchandise styles and categories that were sold online that weren't sold in the store. And with this set of changes, the offering will be truly the same online as it is in stores.

And part of that, frankly, is to drive -- to take out complexity and simplify the business and focus the business, but that's how I'd characterize it. .

Your next question is from Kimberly Greenberger of Morgan Stanley. .

Stuart, my question is on inventory. Here at the end of the third quarter, I think you said it's up 3% at retail. And I think you guided mid-single-digit growth at the end of Q2. It seems a touch higher than your inventory's been running.

I'm wondering if you can comment, are there some pockets of excess inventory here in the first half of the year that you think you need to work through in second half.

And sort of medium to longer-term, what sort of inventory growth rate do you think is appropriate for the business?.

Yes. So our thinking about inventory and inventory discipline hasn't changed, and I'm not saying that because it's convenient. It just hasn't changed. With that said, we are experiencing some short-term sales pressure for the reasons described in the context of sales. So Kimberly, it's going to be up mid-single as we outlined.

In terms of any significant pockets of inventory that we're concerned about, I'm not -- we're not. And we're very focused on ending the spring season clean and at the right levels, and that's requiring some pretty intensive energy right now. But it's a discipline, it's very important to us.

And while mid-single is a little ahead of sales, certainly not dramatically ahead of sales, and we're working it actively to get to that result. But again, not intending to have any significant pockets of inventory in the business that we won't have dealt with through the semiannual sale activity as we wrap up this spring season. .

You next question is from Dana Telsey of Telsey Advisory Group. .

As you think about Victoria's Secret business and the people and product changes, how do you think about the guidepost of how that business changes go forward, whether it's new product introductions, how are you thinking about integrating loyalty? And what does this mean for the long-term top line growth of the business?.

Victoria's Secret Lingerie, Victoria's Secret PINK and Victoria's Secret Beauty, each of which have the stores and direct activity under common leadership for those 3 businesses. We think that's an important change in organization that will simplify and focus the business on those 3 broad categories.

In terms of guidepost or objectives, the purpose of all of it is to ensure that we're focused and to accelerate growth in core categories. Obviously, PINK has been our strongest performing business over the last several years, and that sales trend, that sales performance has continued in 2016. Beauty has been the weakest of the 3 businesses.

And as we shared in our commentary, a new leader joining the business at the beginning of this month. And it will take some time. A logical question we get asked, understandably, within and outside the business is how long will it take to substantially improve the trend of that business.

And it is a bit longer in lead time and cycle and approach development activities than some of our other categories. But with new leadership and again, the focus through the organizational changes I mentioned, certainly optimistic that we'll see an improvement in trend there.

And then the Lingerie business, the core of the core in terms of bras and panties, a new leader coming in at the beginning of September with various substantial experience and an existing strong leadership team. So an additional resource in leadership -- leader coming in to strengthen that team.

But coming from a good base and again, optimistic through these changes that it will accelerate growth. In all of the measures, whether it's customer satisfaction, sales growth, margin improvement, inventory turn, those are all the things that we'll be driving towards. .

Your next question is from Betty Chen of Mizuho Securities. .

I was wondering if you can talk a little bit about the thinking behind China, making it company-owned versus franchise and sort of the timing right now and kind of when we can expect some contribution from that business. I know that there's already been 26 stores. .

Thanks, Betty. We'll go to Martin for that. .

Betty, thanks for the question. Yes, China is obviously a massively important market for us. We've been very engaged in the last 12 months with our partner there, who's done a terrific job. Really, they did a great job in standing up some 26 VSBA stores.

But as we look forward and we think about the sheer scale and opportunity of the market and we combine that with the complexity, the intrinsic complexity that there is in China, particularly around regulatory affairs around how we build our stores, how we operate those stores.

It seems to me that we're going to be doing most of the heavy lifting anyway. And it makes sense that we should be in it completely. So when can you expect that it should start to make a contribution? Well, the sales contribution will start at the very end of this year. From a profit point of view, I don't really know. Our experience in the U.K.

is that it takes 2 to 3 years to get a business from the investment phase to the profitable phase, and it really depends on the amount of time that we take to build it. Our goal here is to be in it for the very long term rather than to take short-term gains. I hope that gives you some insight. .

Martin, do you see that customer behaving any differently than you've seen in the U.S.

or elsewhere?.

Well, the business that we've got right now is the Beauty business, and that performs remarkably similarly to the rest of the Beauty business globally. One of the neat tricks about the VSBA business is that it's a replication model of what we do here, and the sales patterns that we see are very broadly similar everywhere.

To the extent that lingerie will be different, well, we don't really know. We'll find out at the end of the year when we open the stores, and you'll be the first to know if you call me. .

Your next question is from Paul Trussell of Deutsche Bank. .

Just wanted to ask a question regarding the catalog. You mentioned that you have tested over the past year reducing the distribution. And maybe you can just give us a little bit more insight on the results of that test and thoughts overall around catalog impact.

And then just secondly, with the sales guidance adjustment that was made to flattish comps, can you just speak more specifically about where that downtick occurred? Is this simply a slowdown expected across each of the banners equally? Or to what extent? Is this more of a beauty biz step-down, lingerie, et cetera?.

Great. Okay. So with respect to catalog, we did test the elimination of catalog in 2 significant markets for a year and saw a relatively small to no impact on sales. And if one does simple math on it, you need to get a lot of sales or meaningful amount of sales to pay for the catalog.

In round numbers, we were spending $125 million to $150 million a year on the catalog. And we ran it again for a year in 2 significant markets and didn't see a significant change in sales. Separately and I think importantly for the whole business, in the fourth quarter of 2015, we reduced our catalog activity by nominally 40%.

And demand in the direct channel was up, if I remember right, about 15%. So both based on 2 markets that we tested in and significant reduction in activity in our fourth quarter last year for the whole business.

It made us confident that while there might be some sales pressure, certainly from an operating income standpoint, meaning did it pay for itself, on an OI basis, we felt that this was an appropriate change to make in our business.

Importantly, one of the things that we try to do is we say if we were starting this business today in current context 2016, would you start with one of your major ideas being a catalog, a paper-based catalog sent through the mail as one of your key, if not your key marketing activity for a global brand.

And as we thought about it in that way, along with the numerical test and financial evaluation, very comfortable with the change that we've made. Separately, with respect to your second question on sales guidance and the reduction in comp guidance, I'm glad you asked.

It's important to know that as we outlined in our overall remarks, that we have a range of performance in our business. So in terms of the sales reduction, we haven't changed our assumptions about Bath & Body Works at all. Bath & Body Works grew operating income 15% in the first quarter.

There will be some occupancy pressure in that business in the latter half of the year in connection with the remodel activity for the White Barn and Bath & Body remodels, but Bath & Body is running a very good business. As we also outlined, the PINK business, very strong.

So I wouldn't want outside analysts or investors to think that L Brands has a broad-based concern about sales trends. We actually have important parts of our business, most notably, Bath & Body Works and PINK that are doing very, very well.

And we've got some pressure in other parts of our business in part due to changes that we're making in terms of category exits and reduction in promotional activity, but some weakness in the Beauty business that we've been experiencing now for some time. So a range of performance.

Overall, yes, we've taken our numbers down, but it's on -- it's due to very specific things and only certain portions of our business. Thank you. .

Your next question is from Anne-Charlotte Windal of SC Bernstein. .

Two questions, if I may. So the first one is a big picture question.

So taking a long-term view, what does the VS business look like in 5 years down the road? So what's the contribution from PINK, lingerie, beauty, sports? And where would you like this business to be in terms of operating margin? And then I was wondering if you could also give us a little bit more detail on the impact from the category exits.

So if you could help us think through the seasonality of this $525 million business that you're exiting, what's the cadence of the exit and the expected impact to the other comp in the back half of this year and then for fiscal '17 as well?.

Okay.

So in terms of what the Victoria's Secret business looks like in aggregate and by major component 5 years from now, as a mindset and in terms of goals that we aspire to in our business in many periods we accomplished, we're looking to grow the top line sales in major parts of our business in -- on the low side at 5% per year and on the high side, when we're really doing well, 10% or 15% per year.

So in terms of what are we trying to get done top line-wise over the next 5 years, it would be growth ranging from 5% to 15%, depending upon category and frankly, how well we execute. In terms of the operating income rate for the Victoria's Secret business, this is one of the best brands in the world.

And from that brand, equity, emotional content, leadership position, when we execute really well, we have pricing power. We deliver emotion, great customer experiences, differentiated from competition, and that creates pricing power, which ultimately creates productivity and margin.

And so with that belief and we've got to work hard to continue that leadership position, we believe the operating income rate for Victoria's Secret should absolutely be high-teens, if not 20% when we think about our own history and the best in the world.

So hopefully that gives you some sense of our thinking and what our goals are over the next 5 years. In terms of the exits and their seasonality, the -- we will sell through the swim that we have at the swimsuit business that we have in stores in the spring season.

And to the extent that we have some swim inventory remaining after spring, we'll sell that through the fall season 2016 in the direct channel. That's our current thinking and our current plan. With respect to the apparel exit, again, that's mostly or totally, I should say, in the direct channel.

And we'll sell that both in the spring season and to some extent, into the fall season. So we're looking to, particularly in the store side of the business, move through the inventory. This is about swim at pretty reasonable pace to simplify store level execution.

And frankly, to free up space for other categories, like core bras and sport and other things, but we won't be as urgent with respect to the swim and non-go-forward apparel exit indirect because it doesn't create the same kind of complexity from an operational standpoint in that channel.

So in terms of dollarizing that by quarter, it's going to be more dynamic. But hopefully, that's helpful to you in an overall modeling sense. .

Your next question is from Lorraine Hutchinson of Bank of America. .

Stuart, the comments around the catalog testing were very helpful.

Can you provide any color around what you've done to test-cutting the promotional cadence and what results you've seen there? And then what portion of the $525 million of discontinued categories will hit revenue this year versus next?.

Yes, with respect to the change in promotion and testing of that, we have pretty reasonable measurement of attached sales and the view of incremental sales related to our historic promotions. Meaning, we have pretty good analytics around what we got from that activity historically.

And what we're doing now, as I think you appreciate is, we're looking to replace that activity, which was -- we call that customer relationship management. What it really was, was couponing through the mail in many respects. And we're looking to substitute that with various category level promotions in particular that drive trial of key categories.

That activity and the results from that new activity are being evaluated every week. And so that will be dynamic.

And while the nature of the offers that we utilize through direct mail, which most typically were a free panty and $10 off a bra, we've concluded that, A, we've been running that for a long time; B, a lot of customers came in and got their free panty and didn't buy anything else.

And so we think there's a clever way, a smarter way to drive traffic, that's more healthy for the brand. The details of that are being literally worked every week, including test of key promotional ideas in the business. So hopefully, that gives you some sense of it. It would be easy to return to the prior approach, and we know what it's worth.

So we have a pretty good sense of what it's worth. What's important here is we're making important changes in the promotional approach to the business for the long-term health of the business. It wouldn't be hard to turn that stuff back on in our collective judgment.

The right thing to do for this business is to have smarter ideas about driving trial and driving traffic versus get a free panty and $10 off a bra. .

And Lorraine, I'll try to help a little bit with that $525 million of exited sales. So I'd say this is very big picture, high level, but about 2/3 of that is swim and the remainder is apparel.

As you can expect, we typically sell most of our swim business in the first half of the year, and we still have that product that we're selling through this year. So that impact will be more fully felt in 2017. The apparel business, we're winding that down through this year.

So we'll see some of that impact in the back half of this year and then the remainder in the first half of next year. .

And Amie's outlining it particularly on a sales standpoint. There will be some margin pressure in 2016, and it's contemplated in our guidance. So margin pressure in '16 -- margin rate pressure related to the exit activity that we're talking about. .

Your next question is from Omar Saad of Evercore ISI. .

I was hoping maybe you could dive into a little bit more detail around the Victoria's Secret Lingerie category. What's going on there, especially in bras? I'm wondering if you could specifically maybe address the Bralette trend. Is that something that's significant? Lower price point, but maybe higher units.

Any greater details around the category outside of the macro would be helpful and where you think the opportunity to improve it is. .

Yes, Omar, thanks. So first of all, our total bra business, Lingerie, PINK and sport, store and direct, grew in the first quarter. So in aggregate, all types of bras across both channels had positive sales growth, high-low single digits in the first quarter.

There are clearly some trends in the business, including the Bralette trend that you mentioned, and I think it's well-known and being well covered. And we're participating in that trend in a big way, as you would expect a market leader or the market leader to do. And frankly, that's -- there's nothing new about that.

We're in a business that has different fashion trends from time to time. And hopefully, in most cases, we're leading those trends or certainly taking good advantage of those trends in things like sport bras or Bralettes, we think we're participating well with respect to those trends. So again, total bra business, including PINK, up.

Certainly, some changes in trend that you comment on, that we're participating in. And we're working -- we're not satisfied with a bra business that -- we want it to grow faster than that and particularly, in the core Lingerie part of it. And it's not a sick business, but it's not growing at the rate we want.

And it's so core to this business that, it's in part, why we're making some of the organizational and leadership changes that we've talked about. .

Your next question is from Anna Andreeva of Oppenheimer. .

I guess, a question to Stuart on SG&A, an increase in the guidance for the year from previous, for flat. I guess, help us reconcile that despite the additional savings from catalogs and headcount reductions.

And should we expect additional SG&A opportunity into '17?.

Yes. The SG&A guidance is expressed on a rate basis, on a percent of sales basis. And what you're noticing in the change is the effect of us lowering our sales assumptions. So on a dollar basis, not a meaningful change from the view that we had roundly 3 months ago. We will continue to mine for expense opportunities.

As we've outlined, we've reduced the home office at Victoria's Secret in a meaningful way. By the way, a tough thing to do as a business leader and as business people. But from time to time, we make difficult decisions for the long-term health of the business. That would be an example of one of them. But we'll continue to be tough-minded about expenses.

And again, the change you're seeing in the guidance is largely about a change in sales assumption versus the change in expense assumptions. .

And Anna, just to clarify one thing in your question. So catalog costs actually are in buying and occupancy. And therefore, you wouldn't see that as a reduction to SG&A. .

Your next question is from Lindsay Drucker Mann of Goldman Sachs. .

I wanted to clarify to the degree that you've decided to get rid of a bunch of different types of promotions and then we'll figure out other better high-quality ways to engage the consumer going forward.

With the elimination of those specific promotions, did that happen completely in May? Or as we think about balance of year, is there maybe sort of a gradual step forward process where the headwind from reduced promos intensifies as we get deeper into the year? And then maybe just to tack on a second one on a different angle.

Just given your high-level view of the world, I was hoping, Stuart, maybe you could put some perspective on what you think might be going on with the consumer right now. .

Sure. So with respect to the promotional changes and particularly the direct mail promotions that we've changed, we came to a conclusion about that or a decision about that in late March, which we implemented beginning in April.

But as you would appreciate, Lindsay, the specific activity that we're lapping or anniversary-ing from last year varies by month, and there's a meaningful amount of activity in May of 2015 that we're lapping. And again, it does vary some by month. So didn't see a lot of -- saw some, but not a lot of impact in April. We'll see more in May.

The other thing going on with May is there is the Memorial Day shift that affects comp. We think between 1 and 2 points as well. But that's -- that would be the color on the timing of our decision around the direct mail pullback. And again, the impact will vary some by month.

And then with respect to a big picture view of the consumer, Nick could comment on that from Bath & Body, and his accent's better than mine. So let's listen to him for a while. .

I think she's behaving pretty consistently, actually, in an odd way. I think she continues to want to be excited. I think she continues to want to have a story or a compelling story told to her even though she remains value oriented.

But if she sees something that she likes or if she's engaged, clearly, that value price fluctuates, and we can see it in both ways. We see it fluctuates. It's really important when a compelling story isn't told, but we can also see it become significantly less important when the product is good.

So from that perspective, I think it's actually pretty consistent behavior. There's a lot of talk about where is the customer, what's she doing. But from that perspective, I think it's a pretty consistent story, and I think that also ties itself to traffic where we've been -- we've seen pretty consistent levels of traffic.

Now we're having to work very hard to maintain the traffic, given the mall status. But my overall point of view is that the traffic is there. We're working hard to get it and have behaviors consistent. And at the end of the day when big periods happen, big time frames such as Mother's Day, she's still coming out and she still wants to participate.

So kind of that's my overall point of view in terms of sort of the macro level, what's going on with the customer. And as... .

Do you observe any differences -- I was going to say do you observe any differences by region or mall type?.

No, not dramatic differences. It's very difficult by region because regions come up, regions go down, regions come up. On aggregate, that seems to be about okay. Obviously, some malls are better than other malls. And we have a very broad mix because we're not just in core malls, we're also in strips, power centers.

Sometimes we see a mix, a different mix as it relates to product by mall. But in general, we've been pleased with relative consistency. .

Lindsay, just to add on, it really goes with a point we're trying to make, which is we had a wide range of performance in our business. So Bath & Body had a very good quarter with all metrics, all measures. PINK had a very good quarter in business.

And so we're not sensing some broad-based issue, but rather specific execution opportunities which we're proactively getting after. But we're not of a mind that there's some major macro phenomenon going on that's impacting all of our businesses because we had a wide range of performance including some very good in the quarter. .

So thanks, Lindsay. We have a board meeting, unfortunately, that is starting. And I apologize, we're going to leave many of you probably in the queue, but we will take one last question. .

Your next question comes from the line of Michael Binetti from UBS. .

Just 2 questions really quickly on the guidance. Can you help me think about a few of the changes, particularly the -- it looks like it's about a low-teens reduction in the free cash flow for the year, the CapEx didn't change. We can -- I think back into the net income, it looks like the change is based mostly on net income.

Is that fair? Is there anything to think about related to working capital? Any change in the working capital profile of some of the new businesses that you're getting into?.

Short answer is no, no major changes. The change in free cash flow estimate, which again remains very healthy, is related to the adjustment in the income. .

And then can you just give me one thought on -- you mentioned that you're only going to be selling in store -- online what's being sold in stores. And that's a little bit different then what some of the other retailers in this space have been saying.

It seems like it's been more liberating for other people to say we can offer a wider array of product online than we do in stores.

Do you have any thoughts around what's might be different for your business versus what we've heard in some other areas in the sector?.

Yes, we just believe that focus is so fundamental to what we do. It starts with the beginning of this business more than 50 years ago, which is as a specialty retailer being extraordinarily good at a very few things.

And while it's tempting, and we were tempted by it that you can sell a lot of things online and you can do so, in some respects, "more efficiently" than in stores, we believe that the power and advantage of focus and the consistency between channels, far outweighs the increment that you pick up by adding categories online. .

Yes.

And Nick, any thoughts there?.

Yes, Michael, I think, at the end the day, what we're trying to really achieve is a very seamless customer experience, so that the brand stands for the same thing whether you're in a store or whether you're online.

And the benefits that we get from that are not just from a brand perspective, but the alignment of same product, same price, same [indiscernible], same cadence. Messaging really drives terrific efficiency and it doesn't confuse the customer.

So I think it's a win-win on both sides when we get very, very good alignment of both the marketing message, the brand message and the product message. .

Great. Thanks, everyone, for joining us this morning, and we appreciate your interest in L Brands. .

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