Q2 2020 L Brands Inc Earnings Call
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[music].
Good morning, My name is Michelle and I will be a conference operator today.
This time I would like to welcome everyone to the Outbrain second quarter 2020 earnings Conference call. Please be advised that today's conference is being recorded.
All participants are willing to listen only mode into the question answer session at the end of today's presentation.
A question at that time.
Star one.
With more like to turn the call, but you will see Preston Chief Investor Relations Officer L. Brands you may begin thank you.
Thank you.
Good morning, and welcome to L brands second quarter earnings Conference call for the period ending August 1st 2020.
As a matter for Mallaby I need to remind you that any forward looking statements we may make today.
Subject her safe Harbor statement down to enter FCC filings and in our press release. It [laughter] joining me on the call today or Andrew Metwo C O L brands.
And Stuart Burgdoerfer interim CEO of Victoria's secret and CFO of L brands.
All results we've discussed on the call today, our adjusted results exclude the special items described in our press certainly.
Thanks, I now turn the call over to Andrew.
Thanks, Jamie and good morning, everyone.
The second quarter of 2020 continued to be an unprecedented time for the world.
Retail industry and for our business.
Our first priority was and continues to be the safety of our associates and customers as we reopened the majority of our stores in the second quarter.
We adopt the new operating models in all of our stores, that's focused on providing a safe shopping experience.
Additionally, we focused on our distribution fulfillment and call center safety and maximizing our direct businesses.
Overall, we delivered strong results in the second quarter, and we could not have done so without the hard work and dedication of all associates across our business.
In the stores distribution and fulfillment centers call centers and home offices.
On behalf of the company I'd like to express our deep appreciation for all of their efforts.
During the second quarter. We also took a number of important steps to prepare Victoria's secret and Bath and body works to operate as standalone separate companies.
Prove L brands profitability.
Chain liquidity during the pandemic and maximize our financial performance all of which we outlined in the earnings commentary that we were released last night.
As we also discussed in last night's commentary despite our strong results in the second quarter, we do expect results to moderate and for a number of reasons, we have a cautious outlook for the second half of the year.
We won't repeat those prepared comments this morning in order to leave more time for all of your questions. Thanks and back over to you Amy.
Thanks, Andrew that concludes our prepared comments and at this time, we'd be happy that take any questions you might have.
The interest of time and consideration to others. Please limit yourself to one question.
Thanks, and now I'll turn it back over to the operator.
Thank you first question will come from like Bruce Shaw from Wells Fargo. Your line is now open one moment please.
Have you mentioned in the press release about bankers being hired for for the vs transaction can you give us an update on timing of when you guys are exciting.
So I think you caught you cut out there a little bit better I think we've got the just stepped that up so we're going to turn it over to Stuart.
Good morning, I can and those listening so.
Our view on of our activities related to the separation of the businesses first as outlined in our circulated script and as as a Andrew reminded US. This morning, we took important steps.
To create a or to facilitate standalone companies Victoria's secret Bath and body works in the quarter that was the organizational work that we did.
Taking many shared functions and creating oh.
Integrating those functions I should say into the respective businesses, Victoria's secret and Bath and body works.
We did a retain a goldman and JP Morgan.
Very recently shortly after the ended the quarter and we'll begin work with them, where they'll give the board and the company advice about the range of alternatives.
And will assist us in a process as we as we move forward.
Actually it's important to get a read on a holiday results.
To value the business and to ensure that we strike the right balance in terms of.
Timing execution risk and getting an appropriate valuation for the business and what the companies. Most focused on right now is driving great results at retail. So we got a lot of people in stores distribution centers home offices, a vendor partners all kinds of folks.
Organized to provide the best results at retail and I couldn't be more proud of what this team has done over the last 90 days or so through the organizational work reopening stores maximizing volume on the digital channel in the digital channel. So we're very focused on having the best holiday possible itll be important as we as we go.
Go down this path and it will be important input.
You know as as capital markets advisors potential buyers.
Again, the public markets assess.
The opportunity for Victoria's secret so.
Refocused on having a good holiday have hired some banks and took a lot of important steps to to create standalone companies Thats like.
Thanks Stuart Thanks.
Next question please.
Our next question will come from Matthew Boss from JP Morgan. Your line is now open.
Great. Thanks, and congrats on a nice quarter on on the expected moderation in trend for the back half of the year that you cited have you seen have you actually seen a material deceleration in trend at either of your concepts to date and coming out of the pandemic sure just your confidence in Bath and body works and being a stronger.
Business model.
I can touch on customer acquisition trends more recently.
Okay. Thanks, Matt we're going to start with Stewart and then go to Andrew So with respect to two very recent results. We have not at vs. Newco, Andrew will speak to that somebody we had vs. Newco have not seen any change in trend any deceleration that trend over the last several weeks I realize other retailer.
Or is it reported on that we have not seen that in the vs. Newco result.
Hi, Matthew so similar to what Stuart just described.
Somebody works had very strong and consistent results throughout Q2, and as we got more and more stores open through the end of the quarter, finishing with essentially the majority of stores open and sitting here now today in mid August we actually have all.
But about 40 stores reopened we've continued to see very strong results in both our direct channel and our stores channel and as we've moved into August we've seen results continue to be very strong.
In terms of your question around our future confidence in Bath and body works I would say, they're also we have a lot of belief that our trend should be able to continue.
As a strong market leader in all of the categories in which we play.
As you can imagine as we've discussed in the past one of the most critical questions. We always ask ourselves is are we in fact in the right categories of business and are those categories that are still relevant to our customers and growing in the marketplace.
And I think it's fair to say that in the case, a bath and body works. The answer to that question is a strong yes across our entire portfolio.
Honestly, the soap and sanitizer business that historically has been 14% to 15% of the business is.
Even more importance to our customers into to all of the country right now in the midst of a pandemic. So as expected we have seen tremendous growth coming out of that category and while that may moderate overtime, we expect that awareness around the importance of that category washing your hands using SAP.
Incisors, when you're not able to washer, hence we will continue even as the pandemic itself hopefully starts to wane away.
In terms of our other categories. We obviously have a huge and have an important body care business that business has always been relevant to our customers is even more relevance or her today as an affordable luxury away for her to treat herself even when she is unable or unwilling to see.
Spend money on perhaps other larger ticket commodities that as a an inexpensive way whether for self indulgence or to give as a gift.
And then similarly our.
Important home fragrance business has grown substantially over the last half decade.
Also tremendously important to her both now during the pandemic when we're using our homes as a place of work a place of teaching in school and a place of refuge in solids.
Certainly.
Taking your home smell like you wanted to is something that our customer has continued to express interest in and again something we would expect to continue through the pandemic and also afterwards, so again bottom line categories that were in very very relevant today have been relevant in the past and we absolutely believe our justice.
Relevant to go forward.
That helps great. Thanks, Thanks, Matt next question. Please.
Our next question will come from.
With BMO capital markets. Your line is healthy.
Thanks, Good morning, everyone and congrats on the impressive results even environment aside.
Stuart could you quantify merch margin versus occupancy deleverage within the Twoq gross margins and then just higher level you agree that double digit.
So how are you thinking about the opportunities to grow profits on smaller revenue base you general color.
Longer term.
Yep, So Simeon there was substantial.
Rate expansion.
In merchandise margin.
I am talking I'm speaking for I'll be in total.
Substantial merchandise margin rate expansion.
In the second quarter versus last year, and there was some de leverage in total in Vietnam. So.
No one was very favorable there was de leverage.
And it and the two effects netted to an overall gross profit rate that was about flat so last year, but very significant expansion merch margin and deleverage in Vietnam.
Related to both the store channel and some in the direct channel as well netting to about flat.
And then a terrorist EMEA in love with the second part of your question.
Any help on how you think about the revenue size versus EBITDA margin and whether it would be or or either in the concepts. I mean, it's just very impressive to see that.
Despite the revenues declining.
Well, we took a lot of actions, obviously to manage expenses Simeon and we took difficult decisions.
About.
Expenses related to the store channel specifically.
And then separately as it related to home office overheads and marketing spending.
Weve clamped down pretty hard as you would expect us to in this environment.
And the big part of the result was was the difficult decisions, we had to make with respect to store.
Operating costs, including store payroll, but we're glad that we've been able to reopen.
The substantial majority of our stores as we move forward and we'll continue to manage expenses with disciplined but what you saw in the quarter was very substantial actions that we took and I think generally what the industry took but but we were quite focused on it and tried to make the right decisions for the business to ensure you know cash flow and reasons.
Oh profitability in the environment and that's that's how I'd characterize it.
Great. Thanks, guys.
Thanks. Thanks, Simeon next question please.
Your next question will come from Lorraine Hutchinson from Bank of America pick your line is now.
Thanks, Good morning.
A follow up on some of the more cautious comments you made in the prepared remarks.
In two pieces really first you talked about some capacity constraints I can you just discuss any efforts that you're making ahead of time to try to enhance your capacity to get ready for these peak volumes and then second on the call.
Obviously, you'll see some incremental cobot costs in the back half its if there's any help you can give us on quantifying that thank you.
Thanks, Irene Andrew.
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Thanks, Laura.
So in terms of.
Your question around capacity again, there's there's capacity in both of our channels in terms of our stores channel and our direct or online channel.
On the online channel, we have obviously been experiencing holiday like volumes really since the start of the pandemic and what that has meant is that we have substantially ramped up.
Our fulfillment center capacity, even while needing to run those fulfillment centers in a way as we mentioned earlier very consistent with our overall focus on safety protocols and as you might expect that puts some constraints on throughput and other and other productivity measures in those centers.
As we have to apply social distancing and other parameters in those centers.
That said, we're very pleased with the ramp up in capacity that we have already achieved.
In both somebody works and Victoria's secret and as we move into the back half of the year, where volumes continue to grow we're also.
On on track to increase capacity, even further across both networks. So feeling like we're in good shape, there, but obviously.
Anytime there's a there's concern around an outbreak that's something we have to monitor and take appropriate actions and so again, we are cautiously optimistic that we have.
We have procured and are using capacity wisely.
When you think about our stores channel.
Some ways, it's a similar constraint in terms of the number of customers that were able to actually allow into the stores at any point in time in order to again be focused on safety as our key priority.
As well as then our ability to.
To process customers through our cash registers and lines within the stores.
As Weve reopen stores, we started off.
Lift Im speaking now for Bath and body works a store opening pilot in late April.
That put a significant constraints on.
On the number of customers, we were allowing into the store early in that process early on keeping it at about 10% to 20% of Max occupancy.
As we move through the second quarter, we got comfortable with our protocols again around safety social distancing consistent sanitizing of all the surfaces and products within the store on a regular basis.
And that allowed us to get comfortable with raising that Max occupancy up to about 30%, but that's still going to be an issue as we move into the height of holiday in terms of how many customers do we feel comfortable metering into the store at any point in time.
Also in terms of a different cash wrap lay up if you've spent time in our stores either Victoria's secret robot somebody works, you'll see that in order to.
We will allow for social distancing by our associates.
Not all cash reps.
Or not all cash registers on cash reps have been able to be utilized that is.
Caused us to look at more mobile Pos cash reps in order to spread out.
Customers and associates in the back of store to allow for that so again, we're doing lots of additional testing here in the third quarter to simulate peak volume and understand how will that impact capacity in throughput, but those those are really the reasons Lorraine for again, the cautious cautious outlook as we move too.
Allium levels in the fourth quarter that I know you know about our business are many times two to three to four times higher than what we would normally see in the second quarter.
In terms of incremental costs as one would expect putting in place safety parameters and.
No personal protective equipment has certainly come with costs in our stores and we are happy that we have made those investments and happy that we were able to.
Procure all those supplies in a very efficient way, but that does come with additional costs. We're also seeing costs associated with what it takes two then run stores in this new operating model in terms of the level of labor.
In order to keep.
Keep customers and associates safe in order to be able to guide customers through the store in order to be doing the ongoing sanitation.
Of the store in the product as I mentioned earlier, so that all comes with additional costs and then in other parts of the supply chain, whether it's in our fulfillment centers.
That we are.
Again from a safety standpoint operating differently.
Putting some cases paying premium.
Pay in order to procure enough labor as well as as we look up stream in terms of our.
In terms of our base of supply and in terms of our distribution and logistics network. We are seeing some inflationary pressure there on wages in order to to procure enough labor. So that's at a high level, how I would describe both of those things Stuart is going up as any other color you would add either from a vs or total perspective.
No I think I mean, as we've talked about together, Andrew I think that covers it and I just would put emphasis on you said it I just put emphasis on the store capacity.
Dynamic.
In the critical holiday period, and Andrew just Scott described to things that we're working on and we are really working on them, but our priority is to keep associates safe and customers safe, which gets to metering of traffic and sorting out the balance on that capacity in that critical period is key and we've talked about in our remarks, there will be.
Working to try to spread demand to other time periods to serve customers with providing them with the things they want and enjoy and also to just project lease spread out the business to deal with some of those constraints.
Great. Thanks, guys and thanks Lou Green next question. Please.
Your next question will come from.
We're watching from Goldman Sachs. Your line is now open.
Good morning, everyone. Thanks, so much for taking the question here I Wonder if you could update us on the fund timeline so.
The closures at Victoria's secret.
And related topic I think you mentioned in the press release that you're expecting to recapture around 30, 40%. This sales at those closed stores can you talk a little bit about how youre getting to that number does that.
Is that consistent with that types of recapture rates you've seen historically when you've closed stores.
Planning for that recapture optimistic take place and other stores or online.
Do you see that risk that online traffic could fall a little in those areas as you as you closed stores. So any color on that would be really helpful.
Sure Good morning, and thanks for the question. So the store closure activity for Victoria's has been largely complete not fully complete but largely complete we remain comfortable with the estimate of about 250.
Stores closing this year in North America, the difference between largely and fully is we have some ongoing dialogue with landlords property owners developers on some of these situations and so not all those are not all 250 or fully resolved, but again we remain.
A comfortable with the estimate.
And important decision for the businesses as you appreciate.
With respect to sales transfer.
As as you would also into it or understand there is a range of outcomes.
We remain comfortable with the 30% to 40%.
A portion of that as the minority portion call it 5%.
I'm generalizing is going to the digital business.
The balance going to nearby stores as you would understand the specifics of vary by trade area. So a lot of this gets down to shopping patterns traffic flows et cetera in trade areas. It's how we look at it.
And lastly, Alex you asked if the roundly, 30% to 40% is generally consistent with our past history in the short answer that question is yes, and so we done more testing on this a year ago as we got somewhat more aggressive with closures last year, we learned more.
We had experienced prior to that but again, what we're saying is that 30% to 40% range.
Again expecting that activity to be.
EBITDA and profit neutral.
As we move through and we think a healthy thing for the business. We all know what's going on in.
Retailing generally and for that vs. Newco business. We believe this is an important step a good step.
For the long term health and profitability business, So that's where rent.
Thanks, Alex next question please.
Your next question will come from Jamie uranium comes Bernstein. Your line is normal.
Hi, Thanks, very much on as you think about ramping up capacity for E commerce for Bath and body.
Into holiday, how do you think about leveraging cost standards that have any limits on it.
And as E commerce, guys as a percentage in sales for BBW do you see any investments on the horizon in terms of digital platform right capability that you need.
Thanks.
I think that Jamie Andrew.
Hi, Good morning, Jimmy Thanks for the question so.
On your first question in terms of the capacity.
Ramp up obviously, we are making any and all investments required in order to procure that capacity that means working with more fulfillment centers.
Then than what we had at this time last year or even at the peak of holiday were already operating with more centers. This year than last year by about two X and that magnitude will continue as we move through the rest of the year in terms of the other investments being made into.
Those centers, obviously I described many of investments associated with safety and making sure that we have adequate protocols.
Equipment.
Well as labor in those stores those are really.
The investments that will be making from a capacity standpoint from a.
A question around the percent of sale for four about somebody works direct and other capabilities that we're looking to add to the direct business overtime I think it's important to just.
Reground ourselves on.
Whereas bath and body works online historically been as a percent of the total business. So it's finished 2019 at just under 20% of total revenue for for the Bath and body works segments.
But had been growing rapidly over the past several years over the prior five years compounded average growth rate in the high Twentys and the prior two years 2019 in 2018 growing at about 30%.
Per year, so already a large and fast growing portion of the business.
That said as you would have seen in our in our.
Materials released last night for the spring season to date. This first six months of the year.
But somebody works direct was about 42% of revenue obviously, peaking in the timeframe that stores were closed.
But even as the majority of stores have reopened here through July and into August the direct business as a percent of sales has continued in the high twentys to 30% range and Thats frankly, how we're modeling the business go forward.
In terms of capability.
You would have noticed.
That.
We have added the capability of buy online pickup in store.
That is not something that the business had as a capability prior to second quarter of 2020.
We have added that into at this point a little over 60 of our locations.
45 of those locations are specifically buy online pickup in store curbside only.
That was a model that we were fortunate to have.
Sellable to us in California, when some stores that had reopened we're forced to close as a result of governmental and jurisdiction.
Requirements in that state. So we have been able to continue to operate those stores and are pleased with the results were seeing obviously stores do more volume when they are fully open as opposed to curb side only but it is a model that has allowed us to continue to serve our customers and associates.
Safely in those environments.
We do also have about a dozen locations, where we have buy online pickup in store in addition to being fully open.
And we are pleased with those results as well and were intrigued with how to roll that out more broadly as we move through the rest of the year again as Stuart mentioned earlier we.
We do need to smooth volume out from our peaks in terms of peak days and peak time frames and certainly.
The buy online pickup in store option that allows the customer to lock in.
Her sale, but then come and pick it up several days later as a key part of the strategy to do that as we move into the back half.
In terms of other capabilities.
You've heard us talk about our loyalty pilot.
Over the last couple of years with Japan onset of the pandemic, we have not rolled that more broadly, but we continue to be in.
Intrigued and pleased with the results were seeing there and do believe it will take that.
Out more broadly as we move into fiscal 2000 2021.
And we're also looking at other what I'll call Omni channel capabilities.
So again more closely integrates our direct channel with our stores channel and so certainly.
All of the all of the tremendous surgeon business online has as had us accelerate some of the projects that were on maybe back burner or further out to be faster and were intrigued by some of those opportunities as we move into next year nothing additional I would highlight though for balance of this year.
Right. Okay I was hopefully helpful. Thanks, Thanks, Jamie and next question. Please.
Our next question will come easy gallons from Keybanc. Your line is now.
Hi, all thanks for taking your questions.
So with inventory receipts being down 50% MBS digital doing well can you talk about how you're planning the balance of inventory between stores and digital and I guess I've asked a different way how lean can you keep stores relative to what stores, where in the recent past and keep the whole BS experience for shoppers.
So why don't I take a crack at that sounds like the your curiosities, mostly on the Victoria's secret side, it's Stuart so.
Over the last several years.
The.
Inventory levels at Victoria's and the the need to promote.
Based on on consumer response to what we're doing not being as strong as we would have hoped has been high meaning we've been somewhat over bought over the last two or three years Im speaking generally it's varied some by line of business and by category.
With that said the pandemic actually creates a real opportunity for us in the positive sense.
To make substantial change in the profile of inventory purchases, which weve outlined.
That in combination with what we do believe is being closer to the customer and delivering better fashion and newness.
Better merchandising fundamentals around good better best.
Basics.
With Greg Amy and John's leadership in those areas as the key merchant leaders in the business.
The combination of those things gives us real reason to believe along with some some.
Focus on on getting the cost balance in line that we've got a real opportunity to deliver good experiences to customers and substantially improves the profitability the merchandise margin rates in the business, obviously being appropriately in stock.
For the customer.
In core categories in key sizes is a fundamental and something that needs to be and we will remain very focused on delivering a good experience for her so we understand the importance of that we're managing that well.
But really the need to.
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Fundamentally become much more conservative on the inventory buyer the purchases again triggered by the pandemic has a silver lining to it in that it provided a real clarity to the organization about buying much more conservatively and then chasing into business win.
The trend was was in fact, there. So that's where we are we understand that being in stocks important but in terms of overall turn in the business importantly.
In certain categories, we returning reasonably well or in at a level that we're very comfortable with and in other categories, we had meaningful opportunity to improve that turn in the business and again the combination of everything I've. Just described I think is going to get us to a much healthier balance between inventory.
Levels and purchases and end the underlying demand so that's where we're at on thanks, great. Thank you Sir.
Next question please.
Our next question will come from.
Hi, MKM partners your line Standalone.
Great. Thanks for taking my question.
My question is on a Bath and body works and just wondering if you can you talk about.
How you're planning inventory for the holiday.
What your ability to chase into trends looks like and also your approach to the gifting strategy at Bath and body works, whether you're going more after package.
Or you don't make your own or anything that we should think about in terms of strategic changes there. Thanks a lot.
Thanks Roxanne.
So as you can imagine we are absolutely going to be relying very heavily on the agility.
And flexibility that our supply chain for Bath and body works allows us.
As we move into.
The back half of the year again, because we don't know it's a very wide range of outcomes that are possible and so we want to be able to.
Absolutely chase to the upside if we're able to continue a trend.
More like what we've seen year to date.
But also use our agility as we have historically so also cut back if in fact.
Things don't materialize to the level that we would expect them to.
So as a reminder, the bath and body works supply chain is.
Almost.
Almost fully a domestic supply chain and a lot of it.
As actually.
Produced right here in the central Ohio, and so that gives us again tremendous flexibility and agility and allows us to as you mentioned really chase into trends so in our vernacular maximize winners and minimize.
Losers are things that end up performing worse than our expectations.
The.
Nobody to do that has been a critical part of our historical success and we're absolutely relying on it already through the first half of the year, because we were surprised to the upside in the second quarter and so Bath and body works had originally cut back pretty substantially on receipts at the begin.
During the quarter, but we were able to successfully chase back into.
Receipts through the quarter in order to meet our.
Demand that exceeded our expectations and we would expect to be able to use that same flexibility and agility in the back half.
In terms of your question around gifting strategy and specific.
Assemble the gift sets versus more open stock gifting, Ken I think it's important to remind everyone that bath and body works is absolutely a gifting destination for customers year round.
At any point in time.
At the height of holiday.
Probably.
50% to 60% of customer is going to be coming in for gifts, even the rest of the year that numbers in the 30% to 40% range. So you around gifting is something that we focus on for sure about them by works and we see that as a successful driver of the business.
As we move into this particular Christmas I would say based on a several years of testing results around.
The pros and cons of having assembled gift sets. We certainly have moved over the last couple of years to having fewer smaller portion of our business in those assembled gift sets and leader meeting closer to Christmas as opposed to earlier in the holiday season is when that business really peaks and so we'll continue to rely on.
Those learnings to to impact our flow of assembled gifts in terms of amount and timing.
But again, what that does have US focus on then is ensuring that the whole assortment that's available for customers and side of the holiday timeframe is giftable and making that as easy as possible for her with things like.
Cellophane wrap available for all customers ribbons to create gifts our associates are happy to create.
Those gifts for you in store as well as provide you with supplies to do that from home. So gifting in general as much if not more of a focus this year than it's ever been.
Hope that's helpful.
Great. Thanks, Dan.
Next question please.
Your next question will come from Jason Anderson from B. Riley.
Hello.
Hi, good morning, nice job managing the corridor.
I guess first one clarification just on the performance he talked about quarter today is that from July or I guess from the total performance you saw in the quarter and then as it relates to the yes. It seems like Theres some stabilization going on there, though a little bit metals given that pandemic can you maybe talk about.
The driver is the performance I guess, what's working now versus historically and then the 250 store deal closed. This year are there any thoughts around how this is going to impact profitability and retention rate of south you expect either online or other stories. Thanks.
Thanks to then we'll start with Stuart.
So in terms of is is Victoria's secret stabilizing.
I think in many respects it is earlier in this call we talked about the benefits of the more conservative posture.
On on inventory purchase levels.
How aggressive we are buying and how that has an effect on promotional activity. So that's been an important change it's starting to bear some fruit.
I talked about the work that Greg Amy and John are doing in beauty, Pink Victorias lingerie and the fundamentals that there.
Pursuing in terms of merchandising fundamentals easy things to say, but hard to do really gaining some traction and seeing across all major categories.
Healthy average unit retail growth and meaningful margin rate improvements, which is certainly indication of a better stronger.
Response from consumers with respect to to what we're selling.
We are implementing a profit improvement plan that we've talked about a lot of that benefit relates to the Victoria's secret Newco business.
But with all that said, we got a lot of work in front of US where were the businesses results have declined substantially over the last few years.
We're not.
In any way out of touch with reality about where we are but with with that said.
And in the spirit of your question I sense, a real stabilization and with the combination of actions that we're pursuing in that we've talked about as say the opportunity for that stabilization and then for resuming to a pattern of growth. Most importantly at retail in terms of topline in margin dollars again in combination with.
The cost rationalization actions that we've pursued.
Maybe lastly in a lot into that in my response, but it all is.
All these factors matter.
Amy's done important work on the Pink brand positioning John is doing important work on the Victorias brand positioning some of the changes one might argue had been settled so far but we have indication that the consumer is noticing those changes and there are those are important changes and there's more to come.
On both those things so.
We got a lot in front of US again, we're not confuse about where we are you put that in combination and operating in an environment. That's a pandemic, but the effect of closing stores in the earlier conversations around around store capacity and so on at holiday, but feeling like the businesses stabilizing and that we're creating the platform for growth.
So that'd be my perspective on Victorias. Thanks.
And then he did say that the closure at 250 stores, we expect to be neutral to profitability I'm not sure.
We understood your question about quarter to date versus.
July error I wasn't sure with treatment.
Yes, just in terms as you know it doesn't sound like you've seen any weakness from back to school or anything like the trends have continued I guess.
I was wondering if that was from July just given I think there was maybe some variances from the beginning of the quarter to the into the second quarter.
Yes, we had consistent business throughout the quarter and that has continued so far in target.
Great. Thanks, Okay next.
Question. Please.
Your next question will come some Omar Saad from Evercore ISI Your line is helping.
Good morning, Thanks for taking my question.
Quick follow up on BBW, the plus 87 store comp Burke opened store comp, obviously, we assume that slowed as more and more stores open I think 98% of the doors are open now is there way you can kind of put some guardrails on how we should think about how the stores our operating.
Kind of kind of on ongoing basis, and then Stewart would you mind kind of addressing quickly as you do more BOPUS and curbside the margin differential in those types of transactions versus pure traditional ecommerce. Thank you.
Thanks, Tom aren't won't get and Andrew actually for both that's question.
Yeah. So thank you Omar in our prepared remarks last night.
We talk a little bit about.
What were the factors that we thought certainly helped benefits the strong positive comps that we did see as.
Stores open so so again to reiterate what those were obviously when you have a very small number of stores open.
In the early part of work as a reminder, we for Bath and body works started the quarter with only 23 stores reopened in North America.
And we gradually increase that number.
Hi.
But 50, a week through May but couple of hundred a week through June and then down to about 100, a week through July to get to that essentially fully reopened as we sit here now.
In mid August split, but as you would expect when when very few stores where reopened and.
The only a.
Couple of stores in each market early in the quarter, we obviously saw tremendous Lehigh.
Comps out of those locations as they were drawing from a multiple store trade radius.
Obviously in our categories to which is a use up category, where if you are loyal to our products.
Whether again, that's so ore body care or home fragrance you tend to.
If you are using it everyday go through it and about four to eight weeks, depending on the product category, which means.
Stores were closed there was clearly some pent up demand and while some.
Some customers.
Did move their purchasing online many customers waited for our stores to reopen and so we certainly felt some of that impact as we reopened.
And then also as mentioned, obviously industrywide theres, a tremendous demand for soap and Sanitizers and so we certainly felt the benefit of being a strong player in that category.
All of that said.
Even as stores were opened for a longer period of time, so specifically stores that opened late in.
Q1 or early in Q2 by the end of the second quarter, we were still seeing very strong double digit comps out of those locations and again Thats what were what we're looking at and.
Again building, our upside views to as to assume that what would it take to maintain that kind of a trend. While also managing to downsides again, either based on capacity or if there were to be a change in momentum in the business.
On your question regarding BOPUS I think maybe it's.
Or buy online pickup in store I think it's important to clarify that the capability that I described earlier was specific to Bath and body works. That's the only locations right now where we are utilizing that buy online pickup in store.
Capability.
In terms of your question around what do those trends the profile of those transactions look like relative to.
Quote a normal transaction again, when you when you're buying online you're doing so through the through the web site and then directing the purchase ultimately to be fulfilled in one of our stores, but the profile of those transactions look very similar to our or other online.
Options are online transactions tend to have a slightly average order size as higher slightly.
Our daughter size than our in store transactions.
But in terms of margin or category mix very similar to a quote normal or average transaction. So not something that we would think go forward drives a material change.
Great that's helpful.
Thanks, Andrew Thank you Omar next question please.
Your next question will come from Kimberly Greenberger from Morgan Stanley. Your line is now open.
Great. Thank you so much good morning.
Hi, Andrew I wanted to ask about the capacity.
Store capacity that you're talking about at Bath and body works I think you indicated that.
As a result of social distancing that.
You had kept your capacity at 30% Max right now in Bath and body work stores.
Does that continue into the third quarter and what percentage of revenue.
So we understand but traffic is up 30% as Max capacity, but what percentage of last year's revenue can.
That low level of traffic capacity delivery and your stores I would assume that it.
Materially better than that but I just wanted to see if you could help us understand how the traffic capacity limits.
Translate into store only revenues at this at this level.
Thanks, Kimberly so.
Yes.
Obviously, a lot of complexity associated with that answer or without question. So I'll try to I'll try to Directionally answer hopefully in a way that's helpful. So again when when.
We're speaking in terms of metering.
Traffic or number of customers in the store.
The percent capacity that we're talking about there is generally a capacity that's.
Given by local authorities around.
What would the fire Marshal for example, say is a safe number of people to have in the store at any point in time and Weve peg it.
That 30% Directionally number.
Due to really looking at what does that allow for in terms of social distancing of associates and customers throughout the store.
So obviously in many days of the weak and many times of the year, that's not a problem at all meaning that even at a 30% capacity, we don't that doesn't create a line.
Outside the store at all but at other times the Europe in the peak holiday. That's obviously, what we're looking at and trying to figure out. So in terms of that number itself. We certainly will be continuing to test and monitor that again.
The priority is safety, so we're not going to make any changes to that if we think that requires us to compromise on safety and social distancing, but certainly we are continuing to monitor to see if that numbers right.
Other part of your question was around modeling.
What does that allow us to do in terms of covering last year revenue. So obviously in the second quarter.
Even with those parameters in place and even more stringent parameters in place earlier in the quarter. You saw that obviously there was no constraint in terms of our ability to to maximize revenue in the stores.
Traffic into our locations in second quarter was down.
It was down in the high single digit range.
There was some differentiation of that traffic between mall stores and non mall stores. It was down more in mall stores. It was actually up in non mall stores.
Driving performance differentiation between those locations, but the other parts of the selling equation, we're up dramatically so conversion up.
In the 30% range and average dollar sale up in the 40% to 50% range, so way more than offset obviously to that traffic decline and we will be relying on those metrics.
Continue to drive.
Performance as we move into the back half the combination of those things obviously means that the dollar generated by every footsteps into our store is up dramatically up basically double to last year if thats helpful.
Great. Thanks, Andrew.
Maybe kimberly just to add on that little bit or to further emphasize you're trying to envision we are how many people can you bid in the sort of store safely right and if we think of that in Bath and body is case.
Base case run rate, 40% to 50% conversion rates right generally and at Victoria's, Let's say, 30% conversion rates. How do you think about lookers versus buyers right and what do you see in terms of conversion rates and dollars per foot stepped up.
A key part of what we're trying to sort out what Andrew was describing and what we've seen so far is a substantial increase in dollars per foot step right. So it's a complex thing you're trying to sort out physical capacity in your question I think and then there's another aspect of what's the nature of that visitor to your store right and what is she doing and how many people.
Our with her and what's your intent to buy right. So it's complicated beyond just how many people can fit in the store.
Great Thanks for that color.
Thanks Kimberly.
And we're running that window short on time here, we have lockup keep have left 10-Q's said, let's try to.
Absolutely. One question then we'll see how many week Ken getting here. So next question. Please.
Our next question will come from T cells.
Cnine Allison.
Great. Thank you so much my questions about Bath and body works international in the partner own stores.
How are you thinking about growth potential in that business from the roughly 285 stores or some of this year.
What countries you see it from and is there anything about the separation, which will cause a change in that business is growth potential and how you're managing it.
Thanks, Jay Thanks, Jay.
Yes, so as we've talked about.
Some prior calls the BBW franchised stores around.
The world outside of North America is a very nice business model very successful and profitable business model that has seen nice growth over the last several years, obviously the pandemic had an impact on on that business just like it had an impact.
On all of our businesses.
But similar to the us.
The rest of World franchise partners are now largely reopened in terms of locations around the world and also we are able to very successfully shift of business to online.
In all of their markets as well so when we think about from a future potential opportunity again that franchise model, which is a low low capital.
Capital light investments.
With with a lot of.
Potential upside, it's something that we absolutely do believe over the next several years, we will want to expand further into additional geographies because again, we have seen it.
Perform well essentially everywhere, we've gone in terms of specifics around that again in the midst of.
In the midst of still figuring out 2020 and operating safely.
We're not going to speculate on what that will be go forward, but but certainly an important profitable business and one that we do see with growth potential go forward.
Thanks, Dan Thanks.
I tried to get to more in here next question. Please.
Your next question will come from.
It's been bank of America panel.
Good morning, Thanks for squeezing me in my question is just on the marketing savings how much you achieved during this quarter and then will you continue to keep your marketing expenditures at lower levels. In Q3 in Q4. Orson stores are open are you going to increase from the historical levels. That's it. Thanks.
Thanks, Bill will get its Stuart.
So short answer as though of return back to more typical levels. So we pulled back on a lot of stuff as you can understand but they'll have returned to more normal levels as we move into the holiday period.
Great great.
Sale.
One final question.
Last question will come from Paul Thanks Ray.
Your line is now open.
Hey, Thanks, guys and I'm, sorry, if I missed this but can you talk about how the so sanitizer business performed during the second quarter and also what percent.
If you look at it this way what percent of transactions included a soap sanitizer items compared to first quarter and maybe the versus same quarter a year ago. Thanks.
Hi, Paul it's Andrew.
So I did mentioned earlier that we obviously saw very strong performance out of our soap and sanitizer category.
Directionally that business last year.
On an annual basis was 14% of the business in the first half of the year last year. It was in that same 14% to 15%.
Of the business range and this year in Q1, it was about 25% of the business and in Q2 little higher than that but.
In terms of percent of transactions I don't think Thats, something we historically have talked about but but safe to say that.
Customer engagement into that category has been very high.
So as it's grown as a percent of sales at sea in a comparable growth in terms of customer ship into that category and certainly a business remained.
Very bullish on into the future.
Thank you.
Okay, all right that concludes our call today and thank you for your continuing interest in outerwear.
This concludes today.
All participants will connect time. Thank you for your participation on today's call.
Speakers, please stand by for transfer to the pets.
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