Q1 2020 Earnings Call
Good morning, My name is Angela and I will be your conference operator today.
This time I like to welcome everyone to the L. plans first quarter 2020 earnings Conference call. Please be advised that today's conference is being recorded any objections. You may disconnect. At this time I will now turn the call over to Ms., Amy Preston Chief Investor Relations Officer out the L brands you may begin.
Thanks, Good morning, and welcome to L brands first quarter earnings conference call for the period ending may set in 2020.
As a matter for Melanie I need to remind you that any forward looking statements we make today.
ER scepter it hurts Safe Harbor statement, I'm done or do you see filing and in our press release it.
Joining me on the call today, or Andrew Metwo C O L brands, and Stuart Burgdoerfer interim CEO, Victoria's secret and see it though.
Bran.
Oh results, we've discussed on the call today, our Jockstrip results and exclude special items described in our press release.
Thanks, I now turn the call over to Andrew.
Thank you Amy and good morning, everyone.
I'm honored to be joining me. This morning on my first earnings call. That's all brands CEO.
I'd first like to thank Les Wexner for all that he has done to build this business and for all the time that he is devoted to mentoring and coaching me and other leaders of our business.
Extremely grateful that he will continue to benefit we will continue to benefit from his input as chairman emeritus of the board.
I am also thrilled to be working with server Nash or new Board chair and the other experienced leaders on our board and management team.
I'd like to acknowledge the unprecedented time, we're living through right now and the uncertainty that the cobot 19 Pandemics creates.
We have taken actions to manage the business through the crisis successfully.
The primary prioritization on safety for our associates, our customers and our communities.
We have great appreciation for the smart and difficult work that all of our associates and partners around the world are doing on our behalf.
We're all focused and energized by our opportunities to drive long term shareholder value, including implementing a profit improvement plan Victoria's secret.
Separating the Victoria's secret and Bath and body works businesses.
Yeah, and continuing to drive strong growth Bath and body works.
In the prepared commentary, which we released last night, we provided more detail on our response to the covert 19 pandemic.
First quarter results.
Our go forward plans for Victoria's secret and tank and our outlook for the second quarter.
We won't repeat those comments this morning in order to leave more time for your questions.
Thank you and back over to you and me.
Thanks, Andrew.
That concludes our prepared comments.
At this time, we'd be happy to take any questions you might have.
And the interest of time and consideration to others. Please limit yourself to one question now or not thanks, and then what turn it back over to Angela.
Thank you.
And now begin I question answer session feel like to ask a question. Please press star one on mute your phone a record your name clearly.
Our first question comes from Lorraine Hutchinson with Bank of America. Your line is open.
Thank you. Good morning, I was hoping that you could provide an update on the reopened bath and body work stores. How those are performing <unk> E. Commerce is doing in those markets and then if you could also speak to any stock outs or talk to your ability to get back into the product that has been selling out online.
Thank you.
Thanks, Lori will go to interpret that question.
Thank you Ryan and good morning.
First let me remind everyone that our first priority and any store reopening has been focused on the safety of our associates.
And our customers I'd also say that while we made the incredibly difficult, but appropriate decision to close all of our stores on March 17th we.
We immediately did begin working on what would be required to reopen stores as quickly as possible in the safely as possible.
And so we actually were able to have two pilot stores reopens here and local Columbus market.
On April 3rd So we have now over a month month and a half of actual experience.
With these stores.
Again, emphasizing safety has meant that our store operating model is almost completely different from what it was prior what do I mean by that we started each day by taking the temperature of all of our associates, we require that our associates wear masks either that we provide or that they bring from home. We also asked.
In many cases they work loves we provided in July individual aprons.
We have moved away from shirt shopping mesh bugs to individual shopping bags, and we have practice significant amount of social distancing in the stores.
Which has meant that we removed fixtures, we have marked stickers on the floor where customers should stand when they're in the store we have significantly limited the number of customers that are allowed into any of our stores.
10% to 20% of the capacity of those stores.
Pending on jurisdiction, we've reduced our hours of operation and we are doing significant cleaning throughout the day as well as before and after openings and we're doing that cleaning in a very visible way.
Last but certainly not least we've reduced the number of registers in stores and installed plexiglas barriers in between registers and in between the a associate and the customer and we're cleaning all of the surfaces that the customer would be in contact with after every interaction and transaction.
So with all that said I would say we've been very encouraged by what we have seen qualitatively and quantitatively so far in those openings.
Again, we have been first and foremost focused on safety. So we survey our associates everyday to understand how comfortable are they will work environment that we've provided.
We're also regularly serving the customers through emails that have shopped in our stores and we continue to get very high marks from both of those groups.
But actual results standpoint.
I should point out that we've been operating two different store model tests. At this 0.12 is an open model, where we put in place all the safety measures that I, just described but we and the stores essentially open for business, but with a limited number of customers that are able to shop at any point in time.
The other model that we've put in place is a call ahead or go online and buy ahead model, where we're not allowing open shopping in the store, but where transactions are placed by the customer ahead of time and they come and pick up the order once they get an email confirming that that's been fulfilled.
That said, we have seen better success out of the first model the social distancing model is we're calling it.
And in terms of total results again I would caveat that this is a very small sample size at the end of.
One we had 20 threes stores reopened in the models that I've just described.
With those caveats the performance that we've seen out of those open stores has been very similar to the type of trend we were seeing before we closed all the stores back on March 17.
So encouraged by that performance.
The other question was around the performance of online and specifically online in.
The markets, where we have reopen stores. So again as you saw in our prepared remarks, our online business for the total quarter was very strong with net sales up 85% I think it's important to understand that within the timeframe.
Stuart the online channel started to performed significantly better than that total quarter of up 85. Once the stores closed so for the fiscal month of February the online channel was up 33%, which is very similar to the trend we had seen in 2019 in 2018.
For the month of March net sales were up 60% and for the month of April net sales were up over 150% again, so as stores close to the online business saw a significant increase.
That increase while driven by soaps, and sanitizers up over a 300% comp and more than doubling the rate of penetration until last year.
We saw all of our other key categories.
Also performing.
At levels significantly higher than what they have been performing at historically as well so good business across all categories.
And I believe your last question was around the stock outs that we've been experiencing.
I'd say the good news is.
Our supply chain has continued to perform very well through the crisis.
With the notable exception, obviously that the tremendous surge in demand in the sanitizer business has exceeded.
Our supply chain in the early part of first quarter I would say, we have now successfully caught up with that demand and so you should be now seeing online more consistent availability of our sanitizer product versus a month to month and a half ago. It might have been only available for a couple of days a week.
And in our stores as if we opened we've been able to maintain our in stocks across all categories at this point.
Great. Thanks, Andrew Thanks, Lorraine next question please.
Thank you. Our next question comes from Alexandra Wolfowitz with Goldman Sachs. Your line is open.
Good morning, Thanks for all.
The commentary on the lets heightened thanks for taking my questions. Here. My question is on inventory management can you talk a little bit about the process that you went straight to reduce inventory receipts quite significantly.
For the first half.
Why those were reduced so much more at Victoria's secret and Boston, Bobby what somebody that was just a function as a great expectations for demand in Boston body, Lux and any thoughts on how youre planning purchases.
For the second half thank you.
Thanks, Alex Andrew.
Thank you Alex So yes, you saw in our prepared remarks that a bath and body works, we did reduce inventory receipts relatively meaningfully, but but as I. Just described the performance that we've seen in our direct channel.
It's up dramatically and so in some categories soaps and Sanitizers, specifically, we've actually had to significantly increase the amount of receipts that we would have expected versus last year because that category.
For the total first quarter, even with stores closed for half of the time.
The soap and sanitizer business was actually up for the total quarter meaningfully so we've increased receipts there.
We have decreased receipts as you would expect in our other categories.
Based on our current assumptions around store reopening cadence.
In the second quarter, but in the total level, we're very comfortable not only with our total amount of inventory, but with the mix of inventory as we move into Q2 and then into Q3.
I think it is important to remind everyone that again when the stores closed in the middle of March.
The seasonal product that was available for sale at that point.
Was early spring in some cases things like Easter product in our stores and so as we do start to reopen the majority of our stores in the months of June and July we will be opening in a semiannual sale type format, which again is similar to what we would be running normally in that timeframe anyway.
But.
In terms of your question inventory levels and inventory mix at this point about somebody works, we feel very comfortable with.
Great. Thanks, Andrew next question please.
Thank you. Our next question comes from Kimberly Greenberger with Morgan Stanley. Your line is open.
Great. Thank you so much good morning, I wanted to ask about the range of options being considered for Victoria Secrets, given that you are on track to pursue a separation of the two divisions.
And then secondarily.
If you could talk about Bath and body works and some of the more permanent changes you expect in a post cope at world I would be interested to hear about your observations and has this.
Presented in fact, an opportunity for you to accumulate new customers for that business. Thanks.
Thanks, Kimberly will start with Stuart.
Morning, Kimberly.
With respect to Victoria's secret and we're referring to the business internally as vs Newco.
Kimberly what we are intensely focused on right now is strengthening the foundation of that business and even addressing the foundation of that business to manage through this crisis.
And to create a foundation for poor separation and for growth.
And the elements of that work I think you appreciate from our commentary that was provided but I think it's important to review them because it provides very important context.
The essence of your question, which is what options, what we look at and generally and what time frames.
For the separation of Victoria's secret so as you've read I as we announced last night first and foremost we're closing approximately 250 stores in North America over the next several months, that's a very significant decision and appropriate decision and.
In one that we think will strengthen the business, but that the details of that the implementation of that the effect of that is significant so rationalizing real estate more to come after that the 250 stores closing is a big deal and we're a initiating conversations.
And with landlords with respect to that so that's kind of a key piece of work.
Secondly, a we are.
Engaged in a complete comprehensive detailed review.
Our entire home office organization really with the exception of Bath and body, there's a little work happening there, but as you know, it's a well running business and and doesn't doesn't need much change, but with respect to Victoria's secret Newco.
And all the shared functions sourcing production technology HR functions finance functions store design functions real estate functions a wide range of shared a organizations today, we are embarking on a process.
To decentralize those functions to create two standalone companies.
The amount of work involved in that and we're energized about the work, but the amount of work involved in that.
And doing that in a in a way that strengthens the business clarifies accountability retains key talent. That's a very involved piece of work and with that is a substantial.
Target for overhead dollar reductions okay.
And you will naturally ask will when will that be done and we would expect it that work will be largely concluded or concluded by the end of the second quarter. Okay. So we're close on a bunch of stores big deal.
Reorganizing rationalizing decentralizing, reducing overhead for a large home office workforce that's in process.
Thirdly, we've got work to do and it's underway to address the losses and.
Both on Oh, I and EBITDA basis in the UK in China.
And you will ask about those in detail and we won't be prepared to comment in detail about them other than we're looking at all options with respect to those geographies in those markets.
And then lastly, our two more things that we're working on as we got to reopen all of our stores. So if you thought about selling a business literally in the moment, where up essentially all your stores are closed and gave that serious thought for a minute.
No you're a serious person you'd say, it's an interesting time to be actively marketing a business right.
So we would expect to have all the victorious stores certainly opened by the end of July our pace. We've got some range of paces pace in terms of the activity in June and July but would expect to have the stores. We aren't closing to be opened by the end of July but as you again appreciate.
Okay Theres a lot of work involved in that to do that in the ways that Andrew just described for Bath and body, starting with safety of associates and customers.
And then lastly, the management of inventory, so adjusting inventories and Alex's earlier question adjusting inventories for Victoria's there's been a ton of worked on their internally and with our.
Sourcing partners and we believe we've managed it well, but theres more to do there and so all those things are in flight to strengthen the foundation of Victorias.
To allow the business to navigate appropriately through this unprecedented situation for retail.
And to then have a a business that one could reasonably market for sale.
So that's our thought process. The board is heavily involved as you would expect.
Led by now Sarah Nash.
And they're getting regular updates as they should.
And we'll consider a wide range of options for the business, but the ultimate goal here. The goal I won't say ultimate the goal is clear two separate independent standalone companies and having bath and body.
Pure play public company, such that it gets appropriately valued in the market.
The long answer, but it's a big question and I hope a responsive to what was on your mind.
Thanks, Stuart right now, we'll go to Andrew for their second part of her question.
Hi, Kimberly good morning, Thanks for the question.
So as we think about.
The crisis and what the impact will be to the Bath and body works business, both short term and long term I think.
You know as we always do we first ask ourselves a question of or are we in the right businesses.
And I think the very clear answer to that that we're seeing is a strong yes.
So again in our hand soap and sanitizer business, which last year was about 14% of the business.
With the crisis, that's occurred and the focus on safety that business is clearly an essential part of our customers daily routine and so we were already a market leader in that category before the crisis as I mentioned earlier, we've been able to.
Grow our sales in soaps, and sanitizers materially even with the stores closed for half the quarter and so that is encouraging.
And we're assuming I think appropriately that that should continue to be a growth category for us as we look out into the foreseeable future.
Also important to understand though that our other major categories of body care and home fragrance. We also believe are vital to her not only here in the short term, but in the long term.
Home fragrance as everyone is spending more time out of necessity in their homes.
The ability to turn your home into a sanctuary into to have it be reflective of your emotional state is something that we have we've heard qualitatively from our customers and we have seen in terms of our results.
Both in stores prior to an after Rio prior to closure and after reopening as well as in our online channel.
Then our body care business with its emphasis on fragrances, lotions, Bath and shower products.
We believe continues to offer her relatively inexpensive opportunity to pamper herself, while she is isolated.
And as we think long term Theres no reason why those categories and our emotional positioning around fragrance, our affordability that makes our products affordable enough for everyday use while our quality and efficacy make them special enough to give as a gift we absolutely believe we'll continue to be.
A strong.
Positioning opportunity for Us go forward.
The other pieces I think are interesting to focus.
I was just going to I was going to ask as you had mentioned customer as well and so I was going to add a little bit around what we're seeing from a customer standpoint, so obviously with stores close for half the quarter.
Store customers, we saw fewer of them than we did last year, but our direct business as I mentioned, especially since stores close has has seen market growth and I think in addition to just the number of customers that we've now seen online is one of those metrics. We obviously look at it.
The combination of new to channel and new to brand.
Because as you can imagine using direct as both in absolute customer acquisition vehicle.
As well as the ability to turn a customer from a single channel customer into a dual channel customer drives overall value and we have seen very exciting results on that front in the timeframe that the stores have been closed.
Great Thanks, Dan through and storage tank Kimberly next question. Please.
Thank you. Our next question comes from Dana Telsey with Telsey Advisory Group. Your line is open.
Good morning, everyone.
Think about separating the business.
Which areas of operation.
How do you think about.
Segmenting the businesses and the synergies.
Hi from being a joint organization being being de centralized what goes.
How do you see.
With that evolving and does it impact.
Operating margin potential.
Thank you.
So Dan it's Stuart up outtake it.
In terms of how we think about it as you appreciate and your question first of all it's it's complex and needs to be addressed thoughtfully.
With that said.
We're very comfortable.
At the amount of Dyssynergy, a with a couple exceptions that I'll comment on the amount of dis synergy between the two businesses is very manageable and shouldn't have a meaningful impact.
On either businesses operating results.
The two areas that will require the most thought.
Our is technology.
Which by its nature is a significant function and if one does an approach it thoughtfully.
In terms of a logical separation of the technology over a couple of year, maybe a three year period, one could incur a cash and other costs a in a way that's not necessary.
So obviously, we expect to pursue a separation of the technology.
On the businesses on a thoughtful basis and we would expect that that we will have some sharing of technology for.
Two or three year period.
Our systems aren't as integrated as some other retailers it's important to now.
Bass and bodies direct business. For example is not riding on the same platforms that Victoria's businesses riding on and in fact those.
Activities today are outsourced.
But technology, but would be one that deserves and we'll get appropriate thought as we separate these businesses.
Maybe to others I'd comment on.
The sourcing and production beauty products.
You know Dana that Victoria's secret has a beauty business within it it's a good business, it's a sizable business.
Men and running with good numbers and shares.
Organizationally resources and works with some of the same vendors many of the same vendors I should say as bath and body, but we believe that we can manage that well and it's important to understand that scale economies aren't linear and straight in fact, there step functions and one needs to very care.
Really understand how scale really works and where the steps really are.
In scale economies and again, we think we can manage that area well.
And then the last area that comes up a lot with which we believe is very addressable would relate to that to the movement of goods or the inbound movement of goods from basis supply is largely separate today as you understand the sourcing base.
For Victoria's Secret is largely one that's international outside the United States, largely with the exception of beauty, which already commented on.
And the sourcing base for Bath and body is largely domestic as you understand and personal care and beauty. So the inbound transportation as a general matter there a few exceptions, but as a general matter is generally not shared.
The distribution and logistics logistics aspects of the business there is a sharing there.
In some regards but the distribution centers themselves are largely brand specific.
The outbound transportation from.
Central points in.
Largely in the Midwest and specifically in Columbus that out weren't bound transportation is shared and we have some scale there and we can retain that pretty easily.
So.
With respect of movement of merchandise again.
Relatively easy and being addressed.
The overall point, Dan I'd want to make is one of the perspectives coming out of the situation with Sycamore and part of the work in front of us over the next.
Month to 45 days is we're going to more aggressively and actively a separate these businesses were going to use this time to do that such that the ongoing support.
From the LP or BBW Remainco to vs Newco the nature in the extent of that is substantially less.
And what was contemplated in the arrangements with with Sycamore, and we think that will serve the business well and more quickly and more appropriately separate the businesses. So part of that or work that I've mentioned is very much focused on a more accelerated decentralization of many of these functions, but again technology a little bit in.
The supply chain for personal care and beauty, a little bit in distribution logistics, but we think we can manage through all that thank you.
Thank you Jay.
Thanks for the question Hey, Matt next question. Please.
Thank you. Our next question comes from Ike Boruchow with Wells Fargo Securities. Your line is open.
Hey, good morning, everyone hope everyone staying safe Stuart I guess two high level question for you you know talking about the alternatives internationally with the US in this store rationalization opportunities can you talk about.
What you think the ultimate size of the revenue base might need to come down as you start to manage the profitability for that brand and then just some BBW great great Digital business. You know the margins are obviously pressure given what's going on but is there anything that's going on in the business now whether it's the mix or just anything in general that changes your view of what the upper.
The margin profile of that business should be.
Once the macro basically normalizes. Thanks, so much.
So I'll start on the the Victoria's Newco related question.
There is in the spirit of strengthening the foundation of that business.
You appreciate the effective.
Closing roundly 250 stores.
In North America, we think there will be more store rationalization over the next several years as well and Youd reasonably ask the number of stores. Obviously as you move out in time, you're less certain of that but there is.
An additional need to further rationalize the real estate in the business.
In answer to your question, we see a pathway for a business that's.
Say in the neighborhood of a $6 billion ish dollar business or a five and a half billion dollar business. One that mix is much more significantly to digital and one obviously that substantially more profitable than the current or recent state of the business, So a big opportunity to.
To have substantial growth in the digital channel, we're experiencing nice results here recently, but more strategically big opportunity for growth with a good platform to start with a rationalization of the store business a big a first step in this current year.
But as you understand and your question there is more to come and what we see is somewhat smaller but substantially more profitable profitable business.
With a much better foundation and then obviously a return to growth, which is what all of US are looking for for our associates for customers for shareholders. So.
That's that's the the overall thought thanks, Thanks, Andrew for the second part of the question.
Hi, Mike Thanks for the question so.
You know again the nature of your question was around are we seeing anything.
Specifically right now that makes us.
I think differently, either because of mix or other factors about what our longer term.
Profitability operating margin structure should look like.
And my short answer on that would be no again as a reminder, we have have had a large direct business already that direct business. As we've shared historically has performed at an operating margin very similar to our stores business and while we are certainly.
Seeing a significant shift to online here.
Through the through the crisis timeframe and would expect that some of that will be an ongoing shift for the long term theres nothing inherent about that shift in mix that we believe would materially change the opportunity associated with our long term operating margin structure as we move to 2021 and beyond.
Great. Thanks.
Thanks.
Next question please.
Thank you. Our next question comes from Simeon Siegel with BMO capital markets. Your line is open.
Great. Thanks, guys hope everyone is doing well to this.
Stuart I think you gave a distinction between merch margin and product margin for BBW anything you could provide some early for Victorias and then following up on that conversation just with the pullback of inventory, how you'd expect comp versus margin or just discounting to look and then just for Andrew just quickly at recognizing the updated square footage expectation for BBW This year.
It's anything change in terms of the long term view on square footage that we've been seeing white Barnes et cetera. Thank you.
Hi, It's I mean, it's Stuart so I'm sorry, the question, you're asking about the differences between product and merch margin for were Victoria's Newco is what what's the question.
Just your thought on discounts versus what we should expect for promotional cadence for Victoria's secret how that looks on this product margin side.
Yeah, Okay, I just wanted to make sure I wasn't missing something beyond that so Simeon as you would expect and addressed earlier in the questions and through our commentary we had have taken very significant action on inventory.
Very substantial hopefully thoughtful I think it is but very substantial action on inventory one of the challenges in the business over the last two or three years is that.
We have have had a view of revenue or sales that didnt materialize and had been challenged with a promotion declare goods with a softer revenue line said another way, we weren't buying as conservatively certainly with the benefit of hindsight.
As we should have.
No as a as Rahm Emanuel said I think he said it others I'm sure a set it never waste a crisis. So as serious a matter as this has been for our country and for retail and for our company in any way I mean to make light of that but the clarity.
Of the need to take action on inventory and overhead and real estate, we're really.
Quite seriously approaching all those subjects.
And with that very substantial reduction in receipts I would expect that any phenomena that we might have experienced over the last two or three years, where we have found ourselves to be somewhat over bought and needing to drive promotion.
As a result to that we're not going to be in that place. This fall just to be clear, we will not be the receipt reductions are very very substantial.
So that along with honestly, John and Amy being in seat longer they've got they've they've learned a lot for talented people. They are forming their teams they've been enroll longer the combination of those two things and some early indications online granted I got to be careful about and.
You are putting online business right now, but I have lots of reasons to believe that margin rate.
Context.
Should be substantially better for victorias.
As we move into the fall season, and particularly in the fourth quarter.
For the business with that said as we opened stores in Q2.
We're going to be in semi annual sale mode, and so there will be in the second quarter margin rate pressure as you would understand given where we are in the calendar and the need to clear goods in Q2, So long answer, but a lot of reasons to believe that we should be in a better place with respect to margin rates.
Tourists. Thanks, Thanks, sorry, Andrew.
I assume in thank you for your question so.
Again in terms of our real estate strategy for 2020 hopefully.
It's understandable that our decision to slow down dramatically the pace of activity this year.
It's driven by the overall companies desire to be much more conservative in terms of capital spending during these unprecedented times not driven by any change in our either performance of the stores that we've remodeled and opened or our our belief in the long term opportunity that those that those remodel.
Lets do provide to the business as a reminder, we finished.
Last year with just under 50% of our total North American fleet, having gone through a remodel.
Even with the ramp down a number of projects that we will go through this year, we'll finish the year with about 52% of the fleet remodeled and we remain even in the period prior to store closure, we remain very pleased with the results that we're seeing from those stores and so.
So as I looked out to next year and beyond.
Again, depending on the overall financial health of the business, our intense would be to get back to a significantly larger number of projects in the years ahead.
Hopefully that helps thanks.
Yeah. Thanks, a lot best of luck Coburn they say.
Thanks, Simeon so we're running out of time, if I could remind everyone. Just ask one question. So we can get some more it view that would be great next question. Please.
Thank you. Our next question comes from Mark ups Walker with Baird. Your line is open.
Good morning, Thanks for taking my question.
For Stuart just understanding that it's difficult to give guidance and that in a time like this could you outline maybe some of the various cash flow scenarios that you're contemplating for the next couple of quarters would you expect to need to tap the revolver and then along these lines what are the cash flow implications of BS remaining part of.
I will be for the near to medium term. Thanks.
Sure. So as you would expect our focus on managing cash flow and liquidity has been.
[music].
It's not the most among the two or three most important things we've been doing since the crisis emerge so.
Our focus on it.
And actions taken to improve it which had been outlined had been very significant for all the understandable reasons and I would say generally consistent with actions taken by the industry by the way.
And so as you know.
We converted the revolver to an AB all facility and that's been disclosed and communicated.
We have very conservative revenue projections for purposes of forecasting.
Cash for the balance of the year.
We will.
Continue to consider.
Raising additional financing as appropriate.
We've done about 10 bond deals over the last 10 years I checked with Tim favor, who is our treasurer and a terrific treasury by the way, we we know how to do debt financings and I don't mean that an American weights, but but we're familiar with it.
And and the markets are open to people situated like we are we're aware that.
And so.
We'll be looking at the merits of additional financings as we move on and we recognize that today, though the those markets are available to us.
And so.
Well, we make some use of the l. as we move through the year, we expect to based on the forecast that we have and what we also give serious consideration to raising additional financing.
We will with obviously the right conversations with the board and approvals from the board and again the markets are open to us and.
Earnings calls are important things to use to update the markets and so we'll see what our specific plans are here shortly but there are plenty of bankers calling us.
And we're familiar with with doing financings and the markets are opened so hopefully that's a good sense of an answer there without being more specific thanks.
Okay. Thank you.
Thanks, Mark next question please.
Our next question comes from Tiffany Kanaga Deutsche Bank. Your line is open.
Hi, Thanks for taking your question.
Would you discuss them a little more detail you expected cadence from here for store reopening the coffee brands such as how many stores you might have open.
Jim and I guess it confirms from your earlier comments today would it be fair to characterize Bath and body works sales open stores and in the range into 20% comp you saw before the closing.
We can this further into ma'am.
Thank you for me well, good kids and true for that question.
Thank you Tiffany.
So again as I stated earlier the number one priority with how we're running the business overall, but especially as we.
Progress with reopening stores is the safety of our associates and our customers and that will obviously drive the pace at which were able to reopen stores.
That said to you or the first part of your question around what our current view of that cadence looks like I can provide a little bit of color.
So again at the end of the first quarter, we had 23 stores reopened as part of the pilot all of those stores were here in Ohio, and all of those were off mall locations.
As a reminder, about 45% of the Bath and body works overall, North American fleet.
Does exist in off mall centers.
As of this morning, we have progressed from that 23 stores that we had reopened at the end of April to now 66 stores reopened and we now have stores operating across eight different states and we have over the last week actually reopened our first two more.
All locations.
And again important to say that our number one.
Number one priority as we do that is looking at how are they operating from a safety standpoint.
For both our associates and our customers.
At this point, we believe that.
Barring any issues that would arise associated with that guiding principle, we should be able to ramp up the pace of our store reopenings here through the rest of May and into June so that at this point. We believe we will have the majority of our stores reopened by the end.
The quarter.
That said.
In the first quarter roughly half of the stores were opened for roughly half of the quarter, depending on the pace of which were able to reopen here through the second quarter in June and July specifically.
Some of which still depends on markets large markets that are still close to US for example, California, where we have over 150 stores at this point.
The pace of that will determine how many stores were able to have opened for what amount of time, but our current models would assume more like a 30% to 40% of total stores opened for the.
The equivalent of the full quarter. If you will hopefully that's helpful. In terms of performance. Yes, you did hear me correctly that again with all the caveats that needs to go along with it a very small sample size again, only 23 stores were opened at the end of the quarter.
Stores only open an off mall locations, which means oftentimes there are other mall locations in that same trade area that are not open.
But yes, the stores that have reopened have been performing.
In line with the comp trend that we saw before we ended up having to close all stores on March 17th.
Hopefully that's helpful.
Great. Thanks, Dan.
Thanks, Tim to me next question please.
Thank you. Our next question comes from Albert Chen, Let's Cowen Your line is open.
Hi, Thank you we were curious about some of the frameworks around thinking about the vs closures and also the topic of rent expense and what's equitable with different alternatives are scenarios given the reality of sales productivity would also love your thoughts on co tenancy and anchors.
And what may happen as this unfolds. Thank you.
Thanks, Oliver we'll go to Stewart.
Well Oliver it's obviously, a very dynamic situation.
In terms of what's happening in mall based retailing and.
This is your work you understand the industry well.
And and we have important relationships with our landlords in developer partners, but with that said.
We've got some serious discussions to have we are real estate function is led by a an individual Jamie Bersani, who is among the best in the business literally and our business context is clear, which is we need to we need to get relief.
In the form of rent reductions rent abatements, other economic concessions and Jamie will be appropriately working with our landlords and developers to achieve those results.
And obviously to the extent, we can't make the unit economics work then we have to close stores and we're closing announcing a closure of 250 stores. So.
It's a complex dynamic situation, but ultimately it's got to make sense economically for us and Theres a lot of work to do a lot of conversations to be had.
And we'll take the appropriate actions and this part of our business is led by Jamie in a team that are deeply experienced a they know what they're doing and work clear minded and aligned as a team about the situation that we're in at vs Newco.
Andrew you may want to comment a little the circumstances are a little different at Bath and body, but as an overall point Oliver and hopefully I'm being clear that's where we are in it is dynamic.
But I'm comforted by the fact that were really clear as a team about what needs to happen and we're well led and and we start with with a constructive relationships with our landlord partners.
Yeah. Thanks, Oliver Thanks, Stuart I would I would concur with everything that Stuart just said I think again the the two businesses are in a little bit of a different situation as it applies to the store strategy.
So while the guidance for Bath and body works does show a projection of closures I believe for the year of about 50 locations.
That is more of a sense that.
Again, even though we are.
We are able to operate very effectively an off mall locations I think it's fair to assume that there will be some of the at risk mall properties that may not come back to their pre crisis levels of productivity and so even though while bath and body works has traditionally been very soon.
Yes will.
Performing in all venues, whether those are a malls off malls outlet malls or even struggling malls.
We are recognizing that again, the the solvents or viability of some of those locations may be less.
Post crisis, and so Thats, what you see in our forecast.
But we still remain committed as I mentioned earlier too that our real estate remodel strategy, which has been very successful for the past five years is something that we intend to go forward with as we move through the rest of this year and into the years ahead.
Thanks, Thank you best regards.
Thanks, Oliver next question please.
Thank you. Our next question comes from Janet Kloppenburg, JJ K Research associates.
Thanks, and good morning.
I wanted to just ask a quick question on pricing.
The 250 stores.
Yes, Joe assessment that ads b.
Full and complete downsizing necessarily or are you considering another round.
As we go forward or and in that scenario of business not rebounding levels.
[music].
Hi, Andrew I congratulate business trends and as you think about the.
Business I'm just wondering.
The opportunity you see the CLO that business and that has oil, which now represents 20 points.
Sales could become substantially by how does the business.
And.
Maybe you could talk a little bit about how you can further expand that opportunity. Thank you.
Thanks, Dan Stuart So Janet as I think I've mentioned before and it's okay, because we want to make sure we're being clear.
We would expect to have a meaningful number of additional store closures.
Beyond the 250 that were.
Pursuing this year, meaning there will be more.
In 2021, and and probably a bit more in 2022, obviously, our ability to forecast that.
We've got a point of view today, but thats dynamic, but an answer. Your question is do 15, that's it no I would expect that there will be more and again. This is all about.
Strengthening the foundation, having the right sized store business responding to the changing consumer behavior around digital and having a more balanced mix might end up being about 50 50 balanced mix between the digital channel in our business in the store related channel and it'll be a healthier business a bit.
Our business so thats our game plan. Thanks, Dan Thanks.
Sure.
I appreciate it thanks for the question so.
Clearly as Weve talked about and as you Shine a light on there is a big opportunity with.
The sanitizer business I think one point of clarity would be that the sanitizer business.
That's a portion of the total soaps and sanitizer business that I referenced earlier, which was that total was 14%.
Of our business last year and as essentially doubling.
The sanitizer business, it's a much smaller portion of that at about.
20% of that total it has obviously grown dramatically since then to the point, where what was roughly roughly 100 million dollar business last year probably could be.
As we look out to this year and beyond two to three times that size. A go forward, so a meaningful business, but certainly not anything approaching the majority of our business.
One of the ways, we're looking to expand it is not only selling more of the business. So we're in which for the most part has been the small one ounce individual pocket backs as we call them.
But we're also here as we move through the second quarter ramping up the availability of additional sanitizer forms and sizes and we do believe that portion of the business, especially.
We'll continue to grow rapidly as again sanitizer is now something of that will likely be part of all of our daily routines for the months in years ahead.
So meaningful opportunity.
Thanks, Janet So I think leave time for two more questions.
Thank you. Our next question comes from Carla Casella with JP Morgan Your line is open.
Hi, My question relates to the split that that's the key business as.
You mentioned that you expect you want Bath and body works to be the pure play public company does that mean, you'll need to read listed or would that remain existing listing and then use the spin off Victoria's secret from that and then where with the debt set in that scenario.
Car, let Stuart so in terms of that specific structure and form those are things to be determined.
You know obviously you know what our definitive agreement was with Sycamore as one way to accomplish a separation of the two businesses.
And there was logic to that approach and that that particular approach.
We'll probably get heavy consideration as we move forward in terms of one way to structurally achieve.
What we've talked about but carla be premature to get into the details of in that regard that you're asking about.
With respect to how will best effect, a separation of the businesses, but I, but I would.
Take notice of.
The approach that we.
Pursued because based on facts and circumstances, then obviously, we felt that that was an appropriate approach obviously that will all get reconsidered in a new context that commitment is clear, but all of that will get reconsidered with the right advice and obviously under the direction and approval.
All of the board.
So I think it'd be premature college Carla to to get into those details will work to be thoughtful about all of it as you would expect.
Okay and can you just say how long they expect that to take is it like a six to 12 months to get through all of those considerations or is that three to six any kind of the ballpark.
Well, what I would focus on Carla is the four or five things that I mentioned operationally, okay. The closures of stores the reorganization in downsizing of our home office overhead the work that we have in the UK in China, the reopening of stores all that work. So so that work.
We'll be intense in the second quarter and as we begin the fall season, but as we come out of that work and moves through the fall season. That's when we'll we'll be increasing our focus on the on the subject of how to best serve.
Separate these businesses so a specific timeframe I want to be careful about but want to be crystal clear the board's been crystal clear.
Itself and with management, which is the the intention is very clear we've got to get through these steps that I've mentioned.
And the work about how to best separate the businesses will will intensify as we as we move through the fall season. Thanks.
Thanks Carla.
Last question.
Thank you and last question comes from Marni Shapiro <unk> retail tracker.
Hey, everybody. It's good to hear everyone's place is healthy and welcome and James not exactly what you were expecting fear first earnings call I suppose.
Ive to kind of logistical questions one for student one for Andrew Andrew in the stores prior to the closure.
I noticed a lot of people coming into just wash their hands.
So and if the line for your sinks at time. So if you could just update us on what that will look like in your stores go forward and Stuart I'd be a this could you talk a little bit about returns coming back from the online business, especially with the Spike in April I mean, how you plan to handle that and also.
The fitting them experience should look like because Victoria is a much more intimate experienced there's a lot of one on one conversation in contact that's part of the whole experience would you say Victoria's secret.
Great well start with Dan through.
Hi, Marty thanks.
Yes, you're right. This is a little different than I expected.
In terms of your question around saying that I might broaden it a little bit there are many aspects of our store experience since being one of them.
Opened product tests entering being another.
Piece that clearly we are having to operate very differently now in the store reopening pilot that we've done and we're frankly trying to learn as we open more stores how to how to approach that go forward I don't have all the answer is right now again as I've mentioned in our first.
And really primary only priority is safety and so in many cases like on the use of sinks and like on the use of open product testing, we have we pause there use here during the store reopening pilots.
But I'm hopeful that as we move through the balance of the year and into next year that we do figure out appropriate ways to take advantage of those things because we do believe those are and should continue to be competitive advantages for us.
Thanks.
Sure Yeah with respect to merchandise returns in stores and that fitting room experience that Barry just candid straightforward answer is we're testing and learning our priorities are are the same.
As Andrew Art articulated and would be the case I think for any retailer, which is first and foremost is how do we keep associates and customers safe.
And with respect to the return of merchandise and the use of fitting rooms, we've got a lot to learn about that.
And and as we have that learning will will adjust but I'm not going to sit here and tell you that we've got that all figured out because the honest answer is we don't we understand the importance of those things in the running of our business and we'll be looking at a range of options as well other similarly, situated in the industry and.
And we'll learn as we go so we those are important subjects we agree.
And I would say that at this point, we're learning about how to best address as those parts of the experience. Thanks.
Thanks Marni.
That concludes our call. This morning, Thank you per year, continuing interest in all brands and we are we hope you all stay safe and well thanks.
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