LB
#<UNK>, at a high level ---+ and this might seem obvious, but it's important to maybe confirm the obvious ---+ the integration of how we're presenting product to the customer, the integration of pricing and promotion, the interplay in terms of driving business online versus to store, all of that is happening much more naturally today than it was six or 12 months ago.
And I wouldn't suggest from the comment that we've completely nailed that and completely figured it out and it's all perfect; it's not.
But that coordination is more effective, more natural than it was six or 12 months ago.
And we'll make from time to time deliberate decisions about driving business one way or the other in terms of the channels, obviously with the customer in mind through all of that.
So I'd say we made good progress on that, but certainly more to do.
Sure, so we did drive a fair amount of volume in prior years, in 2015 and prior years, through that direct mail promotion that you're familiar with and that we've talked about.
With that said, and again, as I think you appreciate and we've talked about on the call, we've been able to replace a lot of that volume through our targeted promotions, particularly as it relates to sport bras and bralettes.
The amount of direct mail volume that we're lapping is more significant in Q3 and Q4 in dollars than it was in the second quarter, but Q4 in relation to the total quarter, it would be a little less than Q3.
Separately, one way we were able to drive a lot of volume, and we're committed to and did drive a lot of volume in the second quarter, was clearance activity.
We wanted to make sure we ended the season clean, and particularly as it relates to exited categories, and so that sales driver, if you will, or that source of sales that existed in the second quarter, we won't really have that opportunity in the third quarter.
So able to replace some of the volume.
Clearance was also a contributor in Q2.
It does represent pressure in Q3 and Q4, but you should know that we're of a mindset that we're going to offset that volume, and whether that's every month or every week and the right people involved in those discussions, including Les and other leaders in the business, we're working hard to replace that volume and do it in a way that's healthier for the brand and that drives trial and business in core categories.
Thanks.
Thanks, <UNK>.
Sure.
So <UNK> in terms of the exits, there will be pressure in the first half of 2017, and we know what we sold in terms of business from those exited categories, and when we get closer to 2017, we will get more specific about the calendarization of that.
But I think what you know, and you've known us for a long time, and we commented about this on the last call, we're going to work like heck, and we're optimistic we're going to replace that volume with growth in other categories.
And so we got to prove that and we got to do that.
But you should know that that's our mindset, and we're taking specific actions to do that this fall, and certainly, we'll work to do that next spring.
Does the math get harder next spring in terms of the dollar impact of those exits.
It does.
But again, you should know that we'll be working hard to offset that volume.
With respect to the bra launch calendar and key drivers of bra growth in holiday, a couple thoughts.
You mentioned Jan.
Jan hasn't started yet.
She starts in early September, but that doesn't mean we don't have a plan.
We do have a plan.
But given competitive aspects, <UNK>, and so on, and I'm not trying to be in any way unhelpful, but we'll be close to the vest about our bra launch strategy for holiday given where we are in the calendar.
As helpful as I want to be competition, I'm not sure I want to be quite that helpful, so we'll keep that closer to the vest.
So <UNK>, thanks for the question.
Two things.
One, the clearance activity did drive a lot of volume in the second quarter, and some of that was hard to estimate as we entered the quarter, but what we were very clear minded about is how we wanted to end the quarter with respect to our inventory position.
And that was dynamic within the quarter.
But headline answer to your question, some upside related to clearance.
And then the second thought I would register, and I'm being repetitive, but it's a theme through the dialogue, is that we drove some good volume in some of these emerging trends in the bra business.
So the bralette business and the sport business were very healthy for us and good growth in the second quarter, and the panty business, we've got good results there as well, so that's what I would call out.
And PINK continued to have a very nice business in the second quarter as well.
But in terms of what was really different, I would say clearance very strong and some good growth in these emerging categories within bras.
<UNK>, with respect to bralettes, we believe that that business is highly incremental to the bra business.
Nothing is ever perfectly incremental, but we believe it's highly incremental.
With respect to how that category interacts or interplays with PINK, PINK has been in the bralette business for a long time, and it has a very nice business there with good volume and good growth.
We believe that the brand positioning and the customer segmentation of PINK vis-a-vis Victoria's is relatively clear to customers, and while there's always a little bit of interplay, we believe, again, that the segmentation and the positioning is pretty clear between the two businesses, so feel good about it.
Hi there.
It's <UNK>.
Good morning.
I think the only thing I would add to what <UNK> is talking about is also two other components to it from a customer perspective.
There's an acquisition side of it as we see new customers coming into the brand, but there's also a renewal aspect of it as customers get reintroduced to Bath & Body Works as both sides of the store or both front and back of the store are completely remodeled, so there is an additional benefit from that, too.
Okay, so with respect to the sport business and how we are doing and what's our assessment, it's obviously an important category in the bra business.
We think we're well positioned today, generating very substantial growth, but we're working hard to accelerate that growth, and frankly, increase our position and our dominance in that space.
And so you're seeing regular flow of new products; you're seeing relatively sharp price points; you're seeing promotion targeted to sport, and we're getting good results.
So we would grade our paper pretty well for the second quarter, with high ambition for the fall season in terms of growth of sport, and particularly sport bras.
In terms of the comp needed for ---+ to leverage buying and occupancy given the benefit of the catalog lap there, low single digit would be the break point, if you will, to get B&O leverage within gross margin net of the benefit of the catalog elimination.
<UNK>, the only other thing I would just add even at a higher level, and we've talked about it, and it's an additional view, is that Bath & Body Works operating income rate is very high, and what we're looking to do is reinvest in that business for the long-term health of that business and to accelerate growth.
And whether that's through the investment in real estate that <UNK> and <UNK> have remarked about or other things, we want to balance operating income rate with top-line growth and dollar growth.
And so the observation of about the impact of real estate is there.
But again, over a multi-year basis, it's a terrific business.
We want to keep it a terrific business and accelerate growth, and so we're going to invest in the business, and we are.
It's a lot in that question, <UNK>, but that's okay.
All right, fine.
The most important point I want to register, frankly, in response to the question, and I mean this sincerely, but I think it's the most important thing for an investor to understand about us, is we're not trying to win by being the low-cost player.
That's not what we do.
And so you're asking about cost inputs, and I understand.
We're a big Company, and we do pay attention to cost, whether it's about product cost or other cost inputs in our business.
But what this Management Team is most focused on is delivering emotional content, great customer experiences, great store environments, great digital experiences, great interactions with store associates, et cetera, and we're willing to pay for that.
And great product quality as well.
So are there material changes in input costs related to merchandise fall 2016 versus fall 2015.
I would say no.
Are there some changes related to mix.
Yes, sure.
But in terms of year-on-year cost input related to merchandise, no significant changes.
We've got a great sourcing organization that does terrific work, but what they're most focused on is product quality and speed.
They do manage costs, but no big changes.
With respect to wage inflation, we are seeing that more in the United States, which is, at the end of the day, probably a good thing.
As you know from prior conversations we've had, we want to make sure that we're attracting and retaining terrific associates, whether it's at the store level, in our distribution centers, in our home office, and so we're not looking to be the low-cost player in those spaces either.
We're looking to pay for terrific people, ensure that we're getting productivity from those people in terms of sales productivity in stores or other forms of productivity in other parts of our business.
But in terms of cost pressures, the wage piece is affecting store selling, but as you again heard us talk about over time, we believe that through sales growth and other leverage that can come from more productive store associates, we don't ---+ we believe that we shouldn't have, over time, significant deleverage in store selling costs.
Lastly, you mentioned the catalog.
We did cease producing the catalog this spring.
A big cost in our business.
I think as part of that, you're asking are there going to be changes in marketing at Victoria's Secret.
There already have been, and I'm sure there will continue to be more.
And so I don't mean that in an unsettling way, but that's just the dynamic aspect of our business.
And we've made some good progress in marketing in the second quarter, but there will be more change in fall, and I'm sure there will be more change in 2017.
So when we remodel stores, or most of our stores, if we have a change in square footage, they are out of the comp base, so you may be asking about how does it contribute to sales growth.
We are getting sales growth in those locations as we've talked about, and we provided some dimension of that last fall.
And I would say in general, results that have been pretty consistent.
But specifically, as it relates to comp, those stores often, if there's an expansion of square footage more than 20%, those stores are going out of the comp base.
With respect to your second question, it was about the magnitude of volume that we're lapping Q3 versus ---+
The Q3 dollars in proportion to the base, if you will, are more significant in Q3 than they were in Q2.
Yes, want to be helpful, <UNK>, but don't want to get too specific, to be honest with you.
It's some increase Q3 versus Q2, but as you know, we're going to work hard to offset that volume.
