Q3 2019 Earnings Call

At this time I would like to welcome everyone to be L brands third quarter 2019 earnings Conference call.

At this time all participants are in a listen only mode.

After the speaker presentation, there will be a question answer session.

To ask a question during the session you will need to press star one on your telephone.

Please be advised that today's conference is being recorded.

If you require any further assistance please press star zero.

Thank you good morning, everyone welcome to L brands third quarter earnings conference call for the period, ending Saturday November 2nd 2019.

As a matter formality I need to remind you that any forward looking statements. We may make today are subject hurts Safe Harbor Harbor statement found in our FCC filing.

And in our press releases.

Our third quarter earnings release additional commentary in the earnings presentation are available on our website <unk> Dot com.

Oh the results discussed in today's call our jobs group results and exclude the significant items described in our press release.

Stuart Burgdoerfer, EVP, and CFO and Mike will handle the call today [noise].

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

Thanks, Amy and good morning, everyone. Our third quarter earnings per share resolved a two cents was within our forecasted range of between a loss of five cents and earnings of five cents.

Bath and body works exceeded our expectations for the quarter and continues to deliver strong results with a 9% comp increase and a 10% increase in operating income.

Outperformance at Bath and body worked was offset by Victoria's Secret result that was at the low end of our expectations.

Looking to the fourth quarter, we are forecasting earnings per share so about $2.

New Ceos, John Me Austin, Amy Hawk are very focused on getting close to our customers and making improvements to our merchandise assortments marketing and customer experiences in stores and online.

We have more work to do and we recognize that it will take some time to see improvement in the business.

Also as mentioned earlier, we're up against aggressive promotions from last year and the time period between Thanksgiving and Christmas is six days shorter than last year.

Therefore, our fourth quarter guidance assumes a Victoria's secret merchandise margin dollar decline in the high single digit range.

This is consistent with our third quarter results.

We expect continued strong performance from Bath and body works.

We're very focused on executing a successful holiday we will continue to rely on the strength of our agility and we'll continue to test pricing and promotion strategies react to customer preferences and chase into prison product winners to drive results.

Thanks, and over to you and me.

Thanks, Stuart that concludes her prepared comments Connecticut's time, we'd be happy to take any questions. He might cap in the interest of time and consideration to others. Please limit yourself to one question, thanks, and I'll turn it back over to the operator.

Okay.

Operator high we're ready to start question.

Oh.

[noise], sorry, guys bear with us here perspective.

Your first question comes from the line of <unk> Anderson with B. Riley FBR.

Hi, Good morning. Thanks for the question I wanted to follow up on peak, it's nice to see that sequential improvement in the comp. There I was wondering if you could talk about the strong performance in intimates and how it outperformed so well versus the us into men and on the lounge side. It does sound like you're seeing some improvement.

Some products how should we think about that for holiday do you expect kind of war and the newness to flow in for holiday or should we think about spring is baby increasing that better mix. Thanks.

[noise]. Thanks isn't so in terms of the tank result, and intimates, Amy and her team have made a product improvements and have also developed a an assortment architecture that has very sharp price points that may.

The intimate offerings very accessible to the pink consumer so very strong a unit growth results.

A strong sales results again, a rebalancing of the next there too I relate to store to sharp price points.

And highly accessible from a retail price.

Positioning for a interments and tank and the consumer has reacted well to that.

And it's driving a you know a strong overall result.

With respect to improvements that the team is making in.

Apparel and.

Particularly in the tops business, obviously, the their adjustments happening or on an ongoing basis. There is some strength in the apparel assortment as was called out in our pre circulated remarks.

The business will continue to to advanced the assortment in the fourth quarter, but as you recognize in your question.

More to come in 2020, a in terms of change in the assortment the apparel assortment to drive a the results were looking for there. Thanks.

Excuse me thanks.

That creates a next question.

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

Good morning. Thanks for taking my question also wanted to dig into it to be asked for a moment. So there are some cross currents on the merchandise margin lined with you are being planned off with orange array, but but down at pink given the.

On the different strategies there to the extent that you hit your plans for each division how should we think about kind of the net impact of merchandise margin in the near term.

And then kind of separately you caution that via.

I would raise up against the heavier promotional period from last year. Just overall, how are you thinking about the balance of capturing your fair share of traffic during the competitive holiday period versus holding firm on the product in a you are elevation strategy. Thank you.

Sure.

So in terms of the you are positioning for launch array and for a packet. It starts with a point of view that John and Amy communicated back at the Analyst day in September which is the businesses are going after different target customers that.

Her in different stages of their life, then and otherwise just have some distinction and so as the results of that as you know John is pursuing developing pursuing offering a more elevated product a more glamour more fashion a lot of emotional content and overtime. We expect it will get paid for that work.

True you are in margin rates.

Amy has a and team have also do you know done customer where consumer work and one of the things that they have a soft is that they really want to make sure that our offerings to a that customer again, a younger customer that the offerings are highly accessible from.

A pricing standpoint, so there's a natural delineation in a average unit retails as it relates to margin rate with the context I just provided.

Yeah, and overtime or as a target we would expect that both both the businesses and including in the broad business should earn healthy margin rates.

Yeah, consistent with those strategies and so again overtime, but I don't start with the point of view that the margin rates would necessarily be different between the two again the price levels are different but I'm not sure that the margin rates would be different.

Second part of your question up was about promotion and how will we manage.

Through the holiday period, given the significant promotions from a year ago. Obviously, we're trying to get paid for our work to have an appropriate amount of promotion, but there are a couple things that I would just reinforce a one is we need to and we will and inventories with a clear.

Lean position, so that we start a 2020 in a healthy a inventory standpoint, both financially and numerically and also in terms of the freshness in the quality of the assortment that we carry over into the spring season, so ensuring that that happens depending upon how things go obviously will will.

Being important input to the degree or level of promotion through the holiday period. The other is as you recognize in your question. Its a key time for our consumers we have a lot of traffic in our stores and online.

And we'll be balancing a promotional levels to drive volume engagement with customers profit again, the management of inventory flow and sell downs. So we're not we're not overly principled about it. We certainly are pursuing a strategy to get paid for our work and to reduce the level of promotion, but it is dynamic.

We do a lot of testing as you're familiar with and we'll try to strike the right balance considering the factors that I've mentioned thanks.

Thanks, Mark next question please.

Your next question comes from the line of Alex Waldis with Goldman Sachs.

Thanks, So much for taking my question I wanted to go back into the F launch around talk about the a the pricing strategy that so I think you've pulled back on promotions and the brawls business and raised prices that what's what's going on with panties apparel and other categories within that within that business.

And then maybe one quick follow up on that inventory point inventories up on a passive basis. It at both vs and.

BBW I mean, you saw what was planned I'm you know it seems like a like a high growth rate given that shorter holiday season.

Yeah. So I'll start with the second part of your question first inventory is in line with our expectation so to be clear, we are making important investments, particularly in the sleep and lounge category.

In the Victoria's secret lingerie business and also there's some timing and investment related to the Bath and body works business that we believe is appropriate so inventory is in line with our expectations and and we're making deliberate investments given that that given the factors that I described.

With respect to pricing and panties in apparel for lingerie. John is also a in those categories given the quality of the brand and and what we believe as our opportunity in offering differentiated merchandise.

That has significantly more emotional content. He shifting the panty business to include a lot more single ticket panties that are match back panties that comment higher average unit retails and separately in the sleeping lounge business as significant investment in the product in terms of quality of fabrics has.

Feel.

Quality of fashion in design aesthetic.

And and you know going in we believe we'll get paid for that work. So certainly a view a strong view that there's an opportunity to elevate the the product quality the emotional content across all categories and Victoria's secret lingerie and again overtime I believe we believe we'll get paid for that.

Thanks.

I'll just add to that in the third quarter, we did see strong growth in that single ticket panty category, including things like the Brazilian panty, which is more of a higher fashion item.

Thanks, Alex next question.

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

Thank you good morning, I'm looking at the full year guidance.

I think you had been expecting comps to be up low single digits and now expecting flat to down slightly can you just talk about really what changed throughout the course of the third quarter to cause that adjustment in the guide.

Well Victoria's was at the low end of our expectations fundamentally so we've got a good good result, and strengthen and enter the fourth quarter with momentum in the Victoria's secret beauty business.

But both in lingerie and tank at the lower end of a range of outcomes or expectations and as a result.

You know an adjustment to the fourth quarter and thus the the full year.

[noise]. Thank you.

Sure. Thanks, the rain next question please.

Your next question comes from the line of I can borough child with Wells Fargo.

Hey, good morning, everyone Stewart two questions for free Stuart was number one on the dividend could you just comment on your confidence in your ability to sustain the dividend payment given the trajectory of the business. Just curious your thoughts there and then second and again I hate to bring itself, but I know you said than they've been very.

We are that you are looking at all options and regarding to.

The business and Optionality that make this would we booked concepts, but I guess my question is the more BBW outperformed in the us either underperforms or comes in at the low end of your expectations do that.

We've got basically compel you to look at this potential optionality deeper I'm just kind of curious how are the thought process evolves given what's going on in the business. Thank you.

So two different subjects I, but one important aspect of both and that is that those subjects are evaluated by the board. So on the dividend the board regularly reviews, our policy and and on a quarterly basis approves a the payment of.

Our dividends that that would be my comment there with respect to given the persistence of.

Difference in performance between Bath and body works in Victoria's does it.

Give rise to questions like yours or or the curiosity that you're expressing in your question. It does.

The you know that we have a long history of managing the portfolio of our businesses to drive value for shareholders that history includes splits in spends and sales.

The board pure periodically evaluate those opportunities to increase shareholder value over time.

And the board does receive input from outside financial advisors with respect to those subjects.

Thanks Ike.

Next question, please think site.

Your next question comes from the line of Kate Fitzsimmons with RBC capital markets.

Yes, hi, good morning, Thanks for taking my question.

My question is on the on BBW curious about that 5% store comp a there was called out in the prepared commentary around strong response during some key days I'm curious what the traffic was behind that 5% number and also if you can just speak to you know maybe monthly cadence or at least consistency in traffic in the quarter. It does.

We'll take across the industry hides get higher at around some of these key days in the loans get lower just curious what you keep meeting around some of these bigger events to comp the comp and then secondly, Stuart if you could just speak to the nature of the impairment that you took in the China business overall in the quarter that would be helpful.

Okay. So in terms of Brad if I sit through your question if I Miss something come back at me, but with respect to traffic levels and comp at Bath and body, what I would call their retail math, which is traffic conversion average unit retail growth, it's all health.

The it's relatively stable their traffic is up low single and their retail metrics are healthy across all meaningful periods of time.

That would be my my response to your first question around retail metrics for Bath and body does that address your question.

Yeah. It does okay, and then with respect to the impairment that we took a in China results have been challenged there as weve talked about and we believe that that based on a historic results our forecast.

The passage of time.

As required by the accounting standards that.

It was appropriate based on a complicated set of analyses and judgment that it was appropriate to taken and necessary I should say to take an impairment charge.

Related to many of our stores.

Full assortment stores in China.

Okay, great. Thank you very much sure. Thanks, Kate next question. Please.

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

Thanks very much.

Can you talk a little bit more on inventory and specifically I'm wondering you know as the Victoria's secret lingerie business.

Works to take.

Oh and comp has come in and you know lower and getting lower and maybe not surprisingly given the decision to take a and pull back on promotion can you talk about where inventory within that business as I understand that it's up for Victoria's secret overall, but.

Are you planning for those comps to be worse as they work comes out or how are you thinking about that.

We're not planning for comparable store sales to be down as a you are goes up obviously were highly motivated to grow the topline in our business at healthy margin rates to stabilize and then you got the business back to where it has been and should be so.

The strategy of finding the right pricing structure for the assortment good better best getting paid for our work in the case of laundry as expressed you know to earlier Q and I are you are increases based on quality of product. That's all intended to have a healthy balance between.

I mean, a units and and pricing overtime, but we certainly don't have a strategy to raise prices to drive sales declines and I'm exaggerating, a little bit and profit declines its intended to drive healthy topline growth overtime and get paperwork.

Sure I guess, maybe a better question isn't the are you expecting units to be down as you are coming back and are you planning to implement potential potentially in the short term in the short term, but not on a long term basis, but in the short term will there will there be some volatility in units.

Conversely.

In the Pink business units are up dramatically with a you ours down. So there are some significant shifts in the unit you are architecture, one going lower a you are with substantial unit growth at bank.

And the other with a you are increases and it's why you're asking your question. What's your expectation on units that there'll be some pressure on units, but again, our intent in total would be to drive revenue growth as a result, so these strategies. Thanks.

Thanks, Jamie next question please.

Your next question comes from the line of Oliver Chen with Cowen and company.

Hi, Thank you Hi, Stewart regarding vs would love your thoughts on the holiday season, as we approach it this year versus last year and any thoughts on.

Segmentation and using your customer list in a more segmented manner just to drive traffic unbalanced unhealthy promotions.

I'm also there's been more talk about lower productivity malls, and also underperformance and CND locations at different retailers. What are your latest thoughts on the health of your store base and how you're evaluating that.

Question, you get so often thank you.

Yeah.

So in terms of promotional approach Oliver segmentation customer file, we engage with our customers and lots away through lots of ways through email through direct traditional mail communication through social media et cetera, we certainly employ a different views of segmentation in each of the.

Those and other contacts strategy. So we have done that historically, we obviously, we work to get better at that overtime, a in terms of our general views about promotion.

And promotion in key periods I would say a part from not anniversarying, some very significant intimate apparel promotions or at least going in not expecting to to anniversary. Some of those otherwise I would say our promotional strategy is largely consistent with the prior year with some.

Evolution to fewer simpler more impactful offers so that would be I guess the main points that I would want to register on on promotion and obviously, we utilize various segmentation approaches in our context strategies with respect to the store base part of our business.

It's a critical part of our business, obviously as we registered very consistently now for many years and I think was remarked on in our pretty circulated.

Commentary, we opened a lot of stores every year and we closed stores every year and on a net basis. We have open more stores than we've closed and that is just the natural proactive a healthy.

Management of a multi unit store base.

We believe strongly and the relevance and the the opportunities.

Associated with the store base business and at the same time as you also know this is an either or we have a very significant online business at both Bath and body works and Victoria's secret. So we're pursuing appropriate growth and customer experiences in both channels, we actively manage our real estate.

The real estate outcomes are a function of overall business performance. So obviously, we pulled back on investment in the Victoria's business over the last two or three years, given its overall performance and Conversely, weve increased our investment in Bath and body over the last five or six years, given the quality of.

Overall result, and the specific results that we get from remodeling stores are opening new stores that include the white barn.

GAAP and shop treatment or overt white barn store design is as we referred to it so it's dynamic but overall, we're a strong believer in in the store based part of our business, we're making important investments in it where there is a result, and we we proactively manager. Thank you, Okay and lastly.

If you could just help us understand what's next with digital or things, we should focus on whether that'd be the inventory management between channels or BOPUS.

I would love your thoughts Thanks Best regards.

Yes, Thank you Oliver and so as we've outlined.

We completed in the spring season.

It's a year.

Technology project to re platform, the Victoria's secret Dot Com website.

It's up and running and supporting the business.

That work continues to support a international online business outside the United States. So work underway there that'll go live.

In the first half of 2020, as we've mentioned a foundational.

Capability that we're investing into do things like buy online pick up in stores inventory accuracy, and we're getting after that through a project too.

Have RF I D.

Information.

From our stores to ensure that we have appropriate visibility to inventory. So that we don't disappoint customers with with a misunderstanding of the specifics we have brought assortments.

And so we want to make sure that we have very accurate information such that we have the right foundation to do buy online pickup in store I would expect that Oliver sometime over the next couple of years, depending on timing and priority. We recognize the opportunity that comes with it I'm not sure we'll be evaluating a as we close the year starts.

The next year as to whether we get after some of that.

In this next 12 months or whether it moves into 2021. Thank you. Thank you best regards.

Thanks Oliver next question. Please nor next question comes from the line of Kimberly Greenberger with Morgan Stanley .

Great. Thank you so much Oh my questions on Victoria's secret it looks like there was sequential improvement in pink with comps getting better relative to the second quarter. It seems like merchandise margin also got better relative to the second quarter in.

The last piece is the top business it seems like that needs to turn so I'm wondering if you can talk about Amy strategies in tops.

With regard to the core lingerie business.

It seems at least like the initial reception to the new strategic direction that that John has laid out has has not been received well. So I'm wondering if he is course correcting understanding that he hasn't affected the full assortment at this point just the deserve initial flows that.

Came in and the third quarter. It just it doesn't seem like the reception to that has been favorable so I'm wondering what sort of course correcting measures he might be taking thanks.

Yes so.

On Pink Kimberly you recognized in the question the progress made in the intimate apparel side of the business bras and panties and the overall sequential.

Trend improvement still not where we want it to be margin dollars in the third quarter for pink overall were down but up in bras and panties and and down in the apparel categories driven by tops as mentioned in terms of what is Amy doing about that she and her team are leveraging our testing and speed and agility capabilities.

To provide more new offerings to the consumer in that space and also doing more work in sport and seamless.

And outfitting with respect to support and seamless.

In that part of the apparel part of the business. So it's not just how do we go back and try to do what we've done historically, better, but rather really mining for including a real emphasis on sport and seamless what is the new positioning for apparel, and particularly apparel tops in pink again leveraging our.

Design and fast supply chain capabilities that that the business has so a work in process some signs of success, but but the overall result, not what we want it to be in apparel and it's a big part of the business as you. Appreciate so the team is very focused on it but.

Right.

Be curious about it the team very very focused on.

Continued improvement in that part of the business with respect to an assessment of Victoria's secret lingerie and the initial offerings of.

John has introduced into the assortment I really believe it's it's substantially too early to come to any conclusion on it and all elaborate on that there are certainly our offerings that have been introduced into the assortment.

That I have had a strong.

Positive customer response meeting new stuff customer bought a lot of it indication that glamour and.

You know elevation and product at higher price points when.

Executed well get a strong customer response examples of that more specifically would include the match back panny.

Categories that come at substantially higher IMU ours in that have real fashion content to them along with.

Sexy sleep and lounge offerings that have gotten a strong customer response, all that said Kimberly the progress since why you're asking your question. The progress made those examples being provided has not been sufficient to overcome the year on year declines.

In other very significant categories within the the intimate apparel and sleep and loungewear businesses. So.

We're very clear minded about where we are on an overall basis with a lot more work to do John is working.

Mark and very hard building a new team.

Focused on improving execution in stores and online along with.

Some evolution on the marketing as a business.

And there are signs of progress for sure.

But as as again commented on in our.

Pre released.

Information lapping a lot of promotion.

And some weakness in legacy core frames that are big books of business.

And what's happening there as you would expect us to be doing is a lot of development work, where we think will we will have significant relaunch activity in 2020 in some of those early 2020 in some of those core frames that are big books of business that have meaningful year on year declines that were not able to over.

The the progress we are seeing and some of the new items introduced so so that would be my overview of it.

This is a business thats had challenges launch right now for three or four years, and it's going to take some time.

To stabilize it and get it back to where it should be I, absolutely believe John and his team are working on the right stuff signs of progress.

But it's going to take some time.

And all that said shouldn't be interpreted as any sense of complacency or we'll get to when we get to it the team couldn't be working harder.

And with more energy.

To get the results that we're all looking for.

Thanks, Thank you Stewart.

Thanks, Kimberly next question. Please your next question comes from the line of Carla Casella with JP Morgan.

Hi, My question is on on Q2, two things done lessons.

Charger payment for this quarter on the guarantees is there any residual guarantee on la senza or future cash flows out for that and then just your your comfort level with leverage target leverage and if the rating agencies are looking at it anywhere different end and does that double the rating matter to you.

Sure. Thanks, Carla so on the La Senza charge, it said a noncash charge.

Related to potential and I emphasize potential liability that we may have with respect to.

Leases and some credit support that we provided in connection with the transition of sourcing.

To a third party. So it's it's up booking of a noncash reserve for potential cash exposure that we may have in future periods related to again leases and credit support.

Stated with sourcing so thats, what what that is about a with respect to Carla our leverage and credit ratings as we announced a year ago.

The company is taking steps.

Two.

Reduce its leverage we made a bit of progress in terms of debt reduction this year in those steps include reductions of capital expenditures.

We made a change in the dividend announced a year ago, taking effect in January that freed up a bit more than $300 million. So.

Management with the board will continue to evaluate those things are the most important aspect of any of that is improving the cash flow of the business, which is associated with as you. Appreciate the operating improvements that we're pursuing.

In laundry and pink, particularly but.

At the end of the day.

We have we expect to end the year with about $1.4 billion a cash.

We generate significant.

Free cash flow.

Our debt maturity profile is healthy and well spaced out and so those are all.

You know aspects of our capital structure that certainly we consider and any outside party would would naturally consider thanks.

Great. Thanks.

Sure. Thanks, Carlos next question please.

Your next question comes from the line of Marni Shapiro with retail tracker.

Hey, guys.

I'm curious on Victoria's secret just on the marketing side as you enter the holiday season Nobody's, we were hasn't really talked about the fact that over the last many years, you've had a fashion show driving a lot of impressions and yes, and some sometimes some controversy, but a lot of impressions a lot of marketing.

Television through the holiday season have you contemplated how that would impact.

Just the brand itself, we've been very quiet Victoria's secret over the last you know as Youve transitioning back for the last couple of months and as you come into the holiday season stepping kind of quiet, but in the holiday season, you're going up against years, a fashion Chelsea could you talk a little bit about your thoughts there.

Well, we have we have certainly thought about it as as communicated previously we think it's important to evolve.

The marketing of Victoria's secret that is happening.

You know in certain respects now and I think though there will be more to come.

As that continues to get evaluated again, we believe the most important thing is the quality of the merchandise itself.

Quality of our execution and selling in stores and online.

But marni, we recognize and appreciate that the communication of the.

The brands the offerings.

The emotional content of Victoria's secret is obviously an important thing.

And I expect that that will have evolution of those things.

Certainly as we move through the next 612 months and John focused on those things in terms of you know in a granular granular way specifically as timing over the years shifted in terms of the airing of the fashion show did we see specific material.

Ill impact on short term sales response to the airing of the fashion show as a general matter. The answer that question is no. So if you like Oh My God Steward are you freaked out about today at the fashion show results and what's going to happen based on it did air at different times over the years and we didn't see a material.

Impact on.

The next few days results.

With that said it was a very important part of the brand building of this business and was an important aspect of the brand and a remarkable marketing achievement and with that said.

We're figuring out how to how to advance the positioning of the brand and best communicate that to customers and thats among the things that the John is focused on but nothing for this holiday season is that right nothing not will will be communicating to customers, but nothing that I would say is similar in magnitude.

The fashion show, but you can be sure will be communicating with customers through lots of vehicles, including social media.

And various.

More current.

Platforms, if you will hi, mailings up this year to last year last thing.

Generally consistent.

Thank you sure. Thanks, Marni, So we'll take two more questions.

Next question please.

Your next question comes from the line of Paul Landry with Citi.

Hey, Thanks, guys.

Bath and body works can you give a sense of the magnitude of merch margin and overall gross margin declined this quarter versus yes, you're in a leverage just in terms of basis points and how should we think about the leverage point for occupancy and this gionee in that business and the fourth quarter and into.

20, and then just just one clarification Stuart will the charge this quarter all related to China I, just wanted to understand which assets did you take the impairment charge on the hand, if that impacts fuel depreciation going forward. Thanks.

Okay. So [laughter], but also your first question is again about margin Theres a lot there and we'll get to all of it. So your first question was about merchandise margin rates for Bath and body in the third quarters that is that what your question was.

Just the just the merch margin versus as you may be in terms of basis points, what were the drivers to the overall change and BBW EBIT margin.

The first thing I would say, Paul and again it may seem like Pablum, but I think it's important because it's really important is a an operating income rate.

For Bath and body works in the low Twentys, we believe Nick believes that the business believes as appropriate and the business has consistently delivered very healthy topline growth and very healthy bottom line growth with a little bit of de leverage in the rate over the last few years largely reflecting the.

Impact on depreciation and occupancy of the White barn remodel program that we believe is a very positive thing for the business. So thats the overarching point.

With respect to.

Movement in the merchandise margin rate three or four things to no. There is some inflation in the supply chain. There is some impact of terrorists. There is some impact of channel shift given the outpacing growth very dramatic and healthy frankly remarkable growth.

In the direct side of that business, where the merchandise margin rate profiles, a little different than the store profile again that channel very profitable at the bottom line, but the geography of rate different so that puts a little pressure on things and promotion is up slightly and largely due to consumers are responding.

In a very significant way when the business does offer promotion versus the business.

Offering a lot more promotion in terms of days or depth, so that really as Paul the big picture on the margin architecture for Bath and body and that's how we think about it and that's certainly what we would hope.

Investors would would appreciate and understand and and then separately on the management of expenses the team Nick Andrew Mezz Love the management team.

At Bath and body is frankly extraordinary add balancing.

Expense management in the in the business, so investing and things where it makes sense.

And being tough minded and disciplined where it doesn't so not just cutting hours and having bad customer experiences that the business offers terrific experiences for consumers.

The business invest in product quality et cetera. So.

The expense management in the business the inventory discipline in the business is very very strong and those capabilities that mindset that stability in that management team.

Israeli what what what drives the overall result.

With respect to.

The impairment and what geographies were included in the impairment.

China was.

The the.

Greatest amount of impairment, but there was also Paul impairment.

We impaired stores and there was charge associated with the UK in Ireland, and a little animal and some in the United States as well, but but China was the biggest component followed by the UK in Ireland, and then a little bit more in the United States beyond the impairments, we took a year ago. Thanks.

Intimate already an answer your question does it saved depreciation yes, it does and and that's not some people think thats why you take impairments, that's it's actually a required accounting.

Evaluation, so it's not too.

Saved depreciation, but in fact does.

Does have the result of reducing.

Depreciation and forward periods, obviously, Paul part of the China, a valuation relates to our business in Hong Kong. So unique circumstances, there as you would appreciate it.

Thanks.

Thanks Glenn.

One last question please.

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

Hi, This is Tiffany kanaga on for Paul Thanks for fitting a sense.

You touched on it but would you discuss the pricing pricing architecture rebalancing.

More detail.

Specifically that customer is that the lower price points is attracting where you believe she might have been shopping previously for that product as well as how you're thinking longer term about potential from moving her up to higher price points in building out her basket.

Yeah, we.

We spend a lot of time with our target consumers, Amy and team, including in her environments on campus, we leveraged the campus rep.

Campus Representative program, which is significant.

And frankly, and I don't mean to give you a bag or general answer to a question. It's the fundamental answer to the question like any good retailer, where do we think about it as good better and best of pricing pyramid and assortment architecture that in that includes a range of price points.

In the assortment in major categories, good better invest and the business will continue to balance it's offerings. It's result, it's communication.

Using that that foundational aspect of any good retailer and I don't mean to suggest in saying it that way that we always get it exactly right. Obviously, there are times, where we execute against that better than others, but it really comes back to a strong engagement with the consumer.

Good thinking from a merchandising standpoint around good better invest and then leveraging a speed mindset and a supply chain capability in terms of sourcing relationships and transportation in flow that allows us to make adjustments pretty quickly along those lines of it so thats.

We think about thank you.

Thanks to everyone. Thank you for your continuing interest in the L brands and we hope you all habit happy Thanksgiving.

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