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spk06: Good morning. My name is Amanda and I will be your conference operator today. At this time, I'd like to welcome everyone to the Victoria's Secret & Company's fourth quarter 2022 earnings conference call. Please be advised that today's conference is being recorded. All parties will remain in a listen-only mode until the question and answer session of today's call. I would now like to turn the call over to Mr. Kevin Wink, Vice President of External Financial Reporting and Investor Relations at Victoria's Secret & Company. Kevin, you may begin.
spk02: Thank you, Amanda. Good morning and welcome to Victoria's Secret & Company's fourth quarter earnings conference call for the period ending January 28, 2023. As a matter of formality, I would like to remind you that any forward-looking statements we may make today are subject to our safe harbor statements found in our SEC filings and in our press releases. Joining me on the call today is CEO Martin Waters and CFO TJ Johnson. We are available today for up to 45 minutes to answer any questions. Certain results we discuss on the call today are adjusted results and exclude the impact of certain items described in our press release and our SEC filings. Reconciliations of these and other non-GAAP measures to the most comparable GAAP measures are included in our press release our SEC filings, and the investor presentation posted on the investor section of our website. Thanks, and now I'll turn the call over to Martin.
spk03: Thanks, Kevin, and good morning, everyone. Before we dive right into the quarter, I want to first share my deepest appreciation for the hard work and dedication of our associates and partners all around the world. I'm especially thankful for the team's continued commitment to the revolution of our brand and for all they're doing as we push forward our strategic growth plans. I'm delighted by the connections we're making and deepening with our customers as we aspire to become a Victoria's Secret where everyone feels seen, respected, and valued. And of course, I'm delighted to welcome Adore Me associates to our family for the first time this quarter. Welcome, welcome. And as we look back on 2022, our first full year as an independent public company, I wanted to spend a few minutes reflecting on the key actions that we've taken over this past year in support of our strategy and positioning for the long term. It's been a year filled with innovation and many firsts for our customers and our brands, to name a few. We debuted LoveCloud, both a proof point in our best of brass story and our most inclusive marketing campaign ever. We shared our first bilingual campaign for Victoria's Secret Beauty featuring Camila Cabello. We launched Bear, our first fine fragrance pillar in five years and a one-of-a-kind scent that is personal to each individual. We introduced our inaugural global brand campaign, Undefinable, that celebrates individuality and diversity. We extended our channel distribution and now offer an edited assortment of Victoria's Secret and Pink on Amazon and a natural extension to continue to grow our business. We deployed a new digital bra fit technology and have begun to make meaningful improvements to our digital experience to improve the customer journey. We expanded our store of the future fleet to 52 stores worldwide, and we released our first ever ESG summary report in the spring, our ESG materiality report in the fall, and we look forward to publishing our first full ESG report next month. This past year, we also made acquisitions and developed partnerships and organized ourselves to fuel our future growth. Importantly, we inquired the digitally native Intimates brand Adormi to further enhance our market leadership in Intimates and strengthen our ability to put technology at the forefront of everything we do. Internationally, we accelerated our growth as we entered new markets like India and Israel and completed the joint venture agreement with Regina Miracle in our China business. We invested in women-owned and run businesses, including a minority stake in Frankie's Bikinis, to help us reclaim our leadership position in SWIM, and announced a partnership with inclusive lingerie brand Elomi. We announced a new corporate leadership structure, uniting the Victoria's Secret and Pink brands into a single, collaborative organization centered around our focus on the customer and built to capitalize on efficiencies to yield stronger growth. And as part of that new structure, we welcomed a chief customer officer, a chief supply chain officer, and also named a chief growth officer, giving us focused leadership expertise to steer us to the next stage of our transformational journey. Additionally, in 2022, we continued our commitment to women, our associates, our partners, and our communities. A few examples include we brought on more models and ambassadors of diverse sizes, ages, abilities, and identities. This past year, we achieved third-party pay equity certification for all genders, races, ethnicities, and intersections of those identities. We're committed to maintaining our status as a leader in pay equity. We're especially proud of our associate satisfaction metrics, with 87% of our associates reporting that they feel proud to work at VS&Co. We welcomed a new independent director and seven of our eight board members are women, mirroring our customer base. We launched VS and co-essentials and will supply more than one million young women and young adults with undergarments by 2025. And we maintained our partnership with Pelotonia and administered the first grants to researchers as part of the Victoria's Secret Global Fund for Women's Cancers. And we're certainly not stopping there. Already in fiscal 23, we launched the new Victoria's Secret x Naomi Osaka collection, a first design collaboration with Victoria's Secret collective partner Naomi Osaka. The collection features the Forever Bra with our first ever bra pad that can be recycled in a closed loop system. Our first-ever Frankie's Bikinis Times Victoria's Secret Swim Collection is now available exclusively at Victoria's Secret and inspired by founder Francesca's beloved early memories of shopping at Victoria's Secret. We announced the rollout of our new Victoria's Secret and Pink Customer Loyalty Program, which is our first rewards program to allow customers to earn points regardless of payment method. And we were recently named by Newsweek as one of America's greatest workplaces for diversity. So as you see, we've been busy. And at our investor day in October, we announced our intent to become the world's leading fashion retailer of intimate apparel, guided by our three key pillars. Number one, strengthening our core. Number two, igniting growth. Number three, transforming the foundation of the company. We believe we're two years into a five-year journey in the turnaround of our business, and we have a clear roadmap to be the world's leading fashion retailer of intimate apparel. And now I'll dive into the results for a few minutes. For the fourth quarter, despite macroeconomic environment that remained challenging for our customers, we controlled what we could control while navigating a highly promotional retail landscape. We delivered adjusted operating income and adjusted earnings per diluted share results for the quarter above our most recent guidance. This represents the sixth consecutive quarter since the separation that we've delivered adjusted operating income and adjusted earnings per share results within or above our guidance. And importantly, we exited the year with Victoria Secret and Pink inventory levels down double digits on an adjusted basis, prudently positioning us as we begin the new year. We believe this performance in a challenging environment continues to demonstrate our position of strength and highlights our dominant domestic market share leadership position and the stability of the financial platform that we've created. We remain steadfast in our belief that we've stabilized our business model to weather difficult times and our position for significant operating leverage in more normal economic times. In the fourth quarter, our adjusted operating income of $280 million and adjusted earnings per diluted share of $2.47 were both above our most recent guidance. Sales declined 7% in the quarter compared to last year, which was in line with our expectations. Traffic was up in our stores and online in the quarter, and we were encouraged by our sales performance during peak periods of time during the quarter as customers responded positively both in stores and online to our marketing messages and targeted promotional activity. Our conversion rates were down in the quarter compared to the fourth quarter last year, but remained above pre-pandemic levels. As a result of the positive response to our aggressive promotional position and the strength of peak selling periods, our average unit retail was down in the quarter as compared to fourth quarter last year, but again, remained healthy and at or near record highs in most categories, highlighting a customer who is very cautious and cost-conscious in this current environment. From a merchandising perspective, we remain the leader in domestic market share for the Intimates category, and on a rolling 12-month basis, we experienced slight growth compared to last year. From a category perspective, starting with Victoria's Secret, beauty was our best-performing business, followed by sleepwear and bras. Within Pink, Intimates outperformed sleepwear and apparel, which had a difficult quarter. While pink apparel has been a consistent challenge during the last couple of quarters, the underperformance gap widened during the holiday season, and we've already begun to urgently reimagine the pink apparel strategy, assortment, and positioning with our customer, and we will see that impact in late Q2. The pink apparel impact alone was a drag of more than four points on the fourth quarter for the company, so it's a very high priority for me going forward. Our international business continues to perform very well. Total international system-wide sales were up double digit in 2022, and the business has been profitable in each of the last four quarters. Business continues to experience momentum, with most countries performing very well, and we continue to be optimistic about growth plans to expand our international footprint, both in numbers of stores and numbers of countries around the world. As we begin the new year, we're mindful that domestic economic environment continues to be challenging and continues to put pressure on our customers. However, we're evolving and innovating our business, focused on our three key pillars, and we have organic growth strategies and new customer experiences well identified for 2023, including the recent launch of the Victoria Secret and Pink Customer Loyalty Program and a pipeline of bra launches. We recently acquired Adormi, as you know, a technology-led growth vehicle. We plan to leverage some of their technology on our scale platforms starting in the second quarter and continuing through the fall season. Our international business has momentum with partner expansion plans for new stores and new countries planned throughout the next few years. And most importantly, we're a bra company and the market leader in the intimates category positioned for future growth both in our core and with Adormi now in the family. So while the macroeconomic environment remains uncertain, we're assuming sales trends and comparisons will improve through 2023 as we anniversary soft sales trends, which began in the second quarter of 2022. And as we begin to benefit from our new growth strategies and new customer experiences being rolled out through the year. With this in mind, we expect sales for 2023 to increase in the mid-single-digit range compared to 2022. Our forecast assumes our Victoria's Secret and Pink businesses relatively flat over the year for 52 weeks and approximately one to two points of growth due to the 53rd week in fiscal 2023. Our forecast also includes Adormi which is now in our results in 2023 and forecasted up in the mid-teens compared to their most recently completed fiscal year. At this level of sales, we expect our adjusted operating income rate for 2023 to be similar to 2022. Given today's challenging environment, we believe an adjusted operating income rate in the high single digits demonstrates stabilization of our business and represents a solid base we will leverage when more normal macro trends return in North America. For the first quarter, we expect sales to decrease in the mid-single digit range compared to the first quarter last year and forecasted adjusted operating income in the range of $55 to $85 million. As we move forward into the new year, we remain committed to optimizing our performance by focusing on what's within our control, our brand transformation, being best for us, enhancing the customer experience, and a relentless focus on cost and inventory management. Led by our two category-defining brands, a merchandise leadership position in intimates and beauty, and a global business position to increase our market share, our goal is clear, to be the world's leading fashion retailer of intimate apparel. Our focus as leaders and as a company is on ensuring we are a future-facing business that becomes more and more culturally relevant in this shifting environment. We're confident in our opportunities to remain committed and remain committed to delivering long-term sustainable value for our shareholders. Thank you, and that concludes our prepared remarks. At this time, we'd be more than happy to take any questions you might have.
spk06: Thank you. Our first question comes from Laura Lane Hutchinson with Bank of America. Your line is open. Thanks. Good morning.
spk16: Sounds like you do expect some sales recovery as the year progresses. Can you just talk through the areas of the business where you see the most opportunity to grow and then also how much you think you will use the Adore Me platform or technology to try to grow the Victoria's or Pink businesses? Thank you.
spk03: Yep, I'll take a crack at that one. So as it relates to growth, obviously the most important area for us to focus on is bras. We're a bra company. That's where we put most of our energy. And while we are active in other categories, health in the core of the business is the most important thing we do. So you heard me say at the time of SPED, that we would be having at least two bra launches, major bra launches per year, and so it has been. This year will be no exception. In fact, we'll probably have more than two big bra launches. I don't want to say more about that yet for competitive reasons, but we're very excited about the plans that we have in the core of the business. So that's one. The second I would call out is pink, where, as I mentioned, we have had a difficult time in the last 12 months, And it's time for some urgent reinvention. And I've seen that reinvention, and I'm super excited about it. Customers will start to see it towards the end of Q2. It's a new design direction. It's a much more fresh approach. More and better outfits start as more modern raw materials and fabrications emerge. It's a rebuild of the use of our logo, more minimal, less overt logo, and an exit from some of our legacy graphics. So a lot going on in that very important part of the business that I think bodes well for the back half of the year. And you also asked about Adormi. As I've said previously, we're super, super excited about Adormi. It's a fantastic company, which just in and of itself is a great growth vehicle for us. But I think there are three ways that we can leverage their technology going forward. One is we're going to test selling an edited assortment of Adormi merchandise on our site. We're going to test that that's incremental to our system. That'll be up towards the end of Q2. We're excited about that. Secondly, we're going to leverage the technology in try-on at home that Adore Me has perfected, and we're going to apply that to our much larger scale customer base in Victoria's and Pink, and the same with subscription services that will be applied towards the back half of the year. So there are many, many ways in which we can leverage Adore Me technology, but we're focusing on those three initially, and then there'll be more in the out years as time goes by. I hope that helps.
spk06: Thank you. Thank you. Our next question comes from Ike Borchow with Wells Fargo. Your line is open.
spk17: Yes, hi. Good morning. This is Kaydon for Ike. I guess my first question, Martin, just to follow up on Pink, could you remind us how much in revenue Pink was in 2022? And I am curious, you know, you noted the new organization structure at BS between lingerie and Pink. Can you just think about or help explain how you think the new structure maybe will help benefit the brands? You know, I think historically we thought that maybe having the separate structure might be helpful in terms of the guardrails around the two. So I'd be curious just, you know, your view on this structure here. And then I have a follow-up on SG&A.
spk03: Yeah. Thank you for the question. So sleep is a very important category for us, and we think about it in two chunks. The first part we call sexy sleep, which is very provocative merchandise leverages up of the very sexy and dream angels collections. And then the second part of sleep is more casual sleep, which did particularly well during the COVID period and obviously is a major part of gifting during the fourth quarter. So the participation of sleep changes throughout the year depending on the season, but think about 15 to 20% of our total system across Victorias and Pink. That would be directionally close enough for you at this stage. What's the benefit of putting Pink and Victorias together? To a large extent, there is a significant crossover of the customer between the two brands. To a large extent, we're in the bra business in both franchises. 50% of the pink business is bras and intimates. I think it makes sense to build our entire assortment with a single eye to how the customer traverses through the bra and panty experience. And so for the first time, I think, in our history, we have merchant leadership that is considering how the customer sees the entirety of our intimates category. I think that's very important. There are also benefits in the sort of the back of house in the way that we source and the way that we merchandise that should lead to greater efficiency. In some cases, we're buying the same merchandise. but with different design teams and different factories. It makes sense to have a single eye across those two. So those are the main reasons, one, customer-facing. Secondly, organizational efficiency on the back end for us. Great.
spk17: That's helpful.
spk03: Welcome.
spk17: Thank you. I just had one quick... Go ahead. I'm sorry. Sorry. I just had one quick follow-up on SG&A. You guys noted in the commentary with the earnings release, you know, certainly it seems like there are some priorities this year for spend between tech investment, incentive comp, you know, supporting Adore Me. I guess, you know, to the extent that the top line remains variable, I guess I'm just curious on the flex. on the expense front, just given that it seems like those investments maybe have a little less flexibility to secure that high single-digit margin this year. Thank you.
spk05: Yeah, thanks for the question, Kate. I think over the last several quarters, I think the business has demonstrated a very capable flex model, as evidenced by each of the last three quarters when North America business has been challenging. Expense dollars in total have been down in excess of $40 million a quarter. So I feel as if the business from a store payroll and distribution and logistics standpoint particularly has flexed quite well as sales have been somewhat volatile. I think supplementing that is I'll just underline the transform the foundation savings goals that the business has set for the next three years. really a continuation of activity from 2022. So that $250 million goal over the next three years, I think we said a little less than a third of that will actually happen here in 2023. So we feel like we have multiple levers, both on the expense and cost of goods sold lines, to not only drive bottom line performance, but also insulate us a little bit if trends remain volatile here in North America. the teams are doing a very good job of flexing and executing against the expense initiatives. Even here in the first quarter where we're highlighting some volatility in sales continuing in North America, our SG&A guidance, you take the 32 to 33%, Kate, and put that on the volume estimates, you get an SG&A range of roughly 460 to 470 in terms of dollars. Within that, the VS and Pink business or the North America business primarily is about $430 million or flat to last year in the first quarter, even with those investments in technology, marketing, and also bonus-related costs. So hopefully that helps you understand a little bit better kind of also the volume of number of different initiatives and ways that we're flexing the model to keep costs under control, not to mention the wonderful performance on inventory levels that the merchandising and merchandising planning and allocation teams have executed to here. So hopefully that helps.
spk17: Thanks very much. Best of luck.
spk05: Thank you.
spk06: Thank you. Our next question comes from Alex Stratton with Morgan Stanley. Your line is open. Great. Good morning, Martin, TJ.
spk18: Thanks for having my question today. Just two from me. First on the 1Q guide, it looks like it assumes the underlying revenue CAGR to 2019 accelerates a bit from the fourth quarter. So I'm wondering, does that mean you're seeing acceleration quarter today, or how should we think about what's embedded there? And then secondly, the comment on the slight growth in market share. I'm just wondering, like, what did the category grow, and maybe what do you include in that market? I'm just trying to understand how your share changed year over year. And also, if there's anything you can share on bras there, that would be great. Thank you.
spk03: When I take the second question, TJ, you can address the first question. So market share, we have lots of different measures of market share. The one that we use most is intimates as a combined category, which is essentially bras and panties. Essentially, it excludes fine, what one might traditionally call lingerie, meaning sexy sleep. So in that definition, we have 20% market share. And what we see within that 20 is that the BRA mix is stronger and the PENTI mix is less Why would that be? For us, it's a harder business, more competitive business, higher barriers to entry, fewer competitors, and frankly, we're better at it. It's our most important economic engine. Panties is more of a cut-and-sew business. It's easily accessible to every player. It has low barriers to entry, and so it's a more competitive and price-led market. So that's the key distinction we look at there. And as I said earlier, essentially flat across the 12 months, maybe 0.1 point of TJ, do you want to take the second question about acceleration?
spk05: Yeah, Alex, as it relates to Q1 sales, candidly, I'll suggest to you that we're looking at more current trends in our business relative to performance, more so than back to 2019, understanding the business is in a much different place and was in much more aggressive kind of liquidation mode or inventory liquidation mode back during those times. So if I think about the most recent trends in the business, and third and fourth quarter or fall season with North America predominantly being down high single digits, very strong performance in our international business, which was accretive to the total sales numbers that we reported in the fall season. In large part, we expect those trends to continue into first quarter. So from a first quarter perspective, we would expect North America to be down high single digits We would expect the international business in terms of system-wide retail sales to still be up in the low double digits. We're seeing that happen now and we're seeing nice response and kind of growth quickly in China in particular as stores have begun to reopen. So feel very good about the international part of the business. And then obviously we get the benefit of reporting Adormi in our results for the first time. And in the first quarter alone, that will add about a four to four and a half point increase in terms of growth. So that's how we get from negative high singles to negative mid singles with the addition of a dorming. I think the one item of note, because I know that in reading some of the sell side notes from last night and even this morning, the first quarter guide from a sales perspective was a little different than maybe some were expecting. I'll just underline for you something Martin mentioned in his prepared comments, and that was the drag in the quarter of the impact of pink apparel being challenging. That drag of about four points, we're expecting that to continue on into the first quarter and potentially into early second quarter until some of the new merchandise that Martin mentioned starts to arrive. So I think, Alex, if there's a slight disconnect in terms of our expectations for first quarter sales and maybe what the street was expecting. Clearly, in fairness to you, you didn't have visibility to our thoughts around pink and pink apparel. So hopefully that helps.
spk19: Thank you. Great.
spk06: Thank you. Our next question comes from Matthew Boss with J.P. Morgan. Your line is open.
spk09: Great. Thanks. It's Amanda Douglas on for Matt. So Martin, maybe to start, you cited expectations for higher promotional activity in the first quarter in the release. Could you expand on your mindset for promotional activity throughout this year as you manage the business with healthier inventories? And then maybe whether or not you see an opportunity for AUR growth with your new bra launches?
spk03: Yeah, thanks for the question, Amanda. So my mindset on promotional activity is consistent with what I've said in previous calls, and it has less to do with being over-inventoried or under-inventoried and more to do with getting fair share or more than fair share in a highly competitive environment. So when the consumer is feeling less affluent, when she has less money to put food on the table, when she has less money to spend on discretionary items, we all have to be as aggressive as we can in trying to get our share of that wallet. We're competing with beauty, we're competing with outerwear, we're competing with vacations, we're competing with all kinds of competitors who are after that discretionary spend and while the best way for us to compete on that is with newness and to talk about emotional content and you know fresh merchandise that's definitely the best way to go to market but also she needs a nudge in the promotional um in the sense of having a promotional reason to come and shop with us so that's what drives I think it's time to sharpen our – or it has been time during the fourth quarter to sharpen our elbows and make sure that we get a good amount of what's available in terms of discretionary spend. It doesn't have much to do with inventory. Our inventories are very healthy. We're well-positioned. We're down double-digit on an adjusted basis. We have returned our agility to be close to where we used to be entering the season at like 70% bought, 30% open, so that we're keeping our powder dry to enable us to chase the winners. So expect to see something of a continuation of our position from Q4 into Q1. And as it relates to the balance of the year, let's see how the health of the consumer stands up. I would be optimistic that we can lean more into newness and fresh fashion than promotion, but let's see how the consumer responds. The second question was about AURs. And yeah, I mean, when we are designing our architecture for bras, we're not just thinking about extracting more money from the consumer at the top end of the price range. We're thinking about what's the most competitive build across the board. And so if actually having a stronger opening price point than we've had historically is a better a better competitive activity in this environment, then that's what we'll do. We're not just driven by it has to be all about AUR. We're more driven by what makes most sense for the consumer, what gives her the best broad range of products across the spectrum of her occasion and emotion needs throughout the year. But, yeah, AURs are pretty healthy, higher than they were pre-pandemic, and we feel good about what's coming.
spk06: Does that conclude your question? Yes, thank you. Thank you. Our next question comes from Simeon Siegel with BMO Capital Market. Your line is open.
spk10: Thanks. Hey, everyone. Good morning. Martin, any help contextualizing the size of the pink apparel now versus historically and maybe if you have a view on where it should be in the future? And then, Martin or TJ, you called out higher adormi expenses weighing on one QSG&A. I believe would it also lift gross margins? And then just the last quick one, just clarifying your guidance. Does it not account for any incremental buyback, including the remaining on the ASR? And then maybe just a similar vein, interest is growing. So, just any general thoughts on how you're approaching debt versus buybacks? Thank you.
spk03: I'll let TJ take the financial question. Good morning, Simeon. Just give me the pink question again. What specifically are you asking about pink? How large is pink apparel? Maybe how is that in the context? How large was it? Yeah, got it.
spk10: Where do you want it to be?
spk03: So in round numbers, the pink business is approaching $3 billion. Half of it is intimate, so the other half is apparel and sleep. I won't give you the split between apparel and sleep. You maybe have a guess at that yourself, but you can tell from that framing that it's a significant part of the business, and that's why when it was underweight in the fourth quarter, it had such an impact on the total company at four points. Hope that helps, Simeon. T.J.? ?
spk05: Yeah, Simeon, on the Adormi piece, I just want to clarify. I would think about it this way. I would think about their model is different than the VS&Co model from the perspective of it's a digital-only business in large part. They have five or six stores more in test mode than anything else, but it's a digital business for the most part. Their margins from a gross perspective are in the mid-50s, So that would be slightly rate accretive to the company, which means, you know, given their operating margins are similar to ours, their expense levels are going to be in the mid to high 40s. And we're comfortable with that. That's been successful for them. They've grown their business consistently year after year in the 20-plus percent range, and we're forecasting mid-teens here again in 2023. So we're comfortable with the financial model here. The point in mentioning it here as it relates to expenses is obviously it shows up in our P&L for the first time here in first quarter. So their expense levels also tend to be a little more front loaded from a marketing perspective in two shapes. First off, Valentine's Day obviously as it relates to the biggest holiday of the year in the first quarter. They've appropriately been aggressive going after the customer. when there's a high intent to buy. Additionally, from a marketing perspective, a high intent to buy and a high level of interest in the first quarter with their customer gives them an opportunity to really kind of feed the pipeline for the balance of the year when you think about their model being a high subscription model basis. So earlier they can get customers in the funnel better, similar from a try-on-at-home perspective. So we're very comfortable with the model we acquired. It's just helping you and the street understand that the expense profile is a little bit different than ours. The balance of the company, the VS&Co portion of the expense base, I'm very happy with how the teams are managing that and how it's performing. In terms of the buyback and debt question, yes, we are assuming the full $250 million share repurchase in our weighted average share count. I'll just point out that the ASR is predominantly the activity for spring. As we mentioned in our release, the agreement runs through the second quarter. The second piece to that is, as you know, coming out of the spring season, we'll head into our kind of peak borrowing time or cash trough debt peak. in terms of purchasing inventory for holiday season, predominantly in the third quarter. So the point in mentioning that is the balance of the share repurchase activity will likely happen later in fiscal 23 and therefore not have a significant amount of waiting on the WIOs for the year. The last part of your question, from a debt perspective, our model assumes for the most part throughout the year we'll be carrying the balance of the ABL that we came into the year with, the $295 million of ABL balance we came into the year with. We'll largely carry that for the majority of the year until we get to holiday cash season. And the importance in understanding that is really the first quarter of this year, Simeon, is actually a cash outflow quarter for the business in two or three respects. I think first off, 401k matching, bonus payouts, withholdings get paid out in the first quarter. Additionally, the ASR execution that I mentioned happened early in the first quarter. And then the third component that we've described in our filings is really a, I'll call it a real estate or legal settlement that we anticipate paying out in the first quarter as it relates to a property in New York City. So all of those items suggest that the first quarter is a cashed outflow quarter and therefore, again, we'll be carrying the ABL for the majority of the year until after we get holiday cash coming in. Hope that helps.
spk11: Perfect. Thanks, guys. Best of luck for the year. Thank you.
spk06: Thank you. Our next question comes from Omar Saad with Evercore Partners. Your line is open.
spk14: Good morning. Thanks for taking my question. Just a couple quick follow-ups. I was hoping you guys maybe talk a little bit more about performance across some of your store formats and channels, off-mall versus mall, the store of the future. Then maybe also something you mentioned at Investor Day, but I haven't heard an update on the marketplace strategy. Thanks.
spk03: Yeah, good questions. Thank you for that. So let's talk about real estate. So Store of the Future pilots, the first pilots that we opened that have been open for a reasonable period of time, are performing up high single digit relative to their control group. So up high single digit relative to their control group. So that's good. The first stores that we opened in the new format were in off-mall locations, and those have been good. All of them are projecting to be profitable, which is good news, with particular strength in the stores that are in outlets. So I don't mean discount outlets. I mean off-mall outlet locations where we put a full-price store. Those have been particularly good, and there are a number of those across the United States of America where we see opportunity. As it relates to the real estate strategy of having a higher participation in our mall, we feel really good about where we are. As it relates to the deterioration of the fleet in malls that are vulnerable, no new The situation hasn't gotten any better. The situation hasn't gotten any worse. It's about where we expect it to be. So we're projecting that for the year ahead, we'll have 15 to 20 new stores, all of which will be in store of the future, and about 50 renovations that will move some of our better and bigger, higher-performing stores from their current old format to new store of the future format. Incidentally, in many of those stores, occasions, not all of them, but many of those occasions we take the opportunity to downsize, sometimes bring pink from being standalone into the box, which leads to higher sales densities and more efficiency in terms of the way that we run the operation. So we feel pretty good about that. And there's about $100 million more capital going into our stores organization, our stores plate this year than we had in prior year. So hope that helps in terms of the formats the second question was marketplace yeah yeah yeah thank you curated marketplace so when we started working with parties I'm going to say a couple years ago it was a little bit of across the board you know lots of different brands particularly in swim too many brands frankly when the new management team took over we determined that the marketplace should be curated and it should be curated on the basis of three things one Does this brand get us access to a category of merchandise where we're currently underweight? Number two, does this third-party relationship get us access to a customer base where we're currently underweight? And number three, does this third-party relationship bring a halo to the overall house of Victoria? And we feel really good about where we are now in that the curation looks a lot like what I just said and is helping very much. We also see that where customers buy into those third parties, They also buy into Victoria or Pink at the same time, and they're our most valuable customers with the highest spend per customer. So is it an important part of our strategy to go forward? Yes, it is. We think it's a very, very good tool, and it's an area where we can broaden the appeal of the franchise without needing to do all of the lifting within Victoria on her own. So I hope that helps.
spk13: Thanks for the call, Martin.
spk06: Thank you. Our next question comes from Adrian Yee with Barclays. Your line is open.
spk00: Oh, great.
spk07: Thank you very much. Martin, I was wondering if we can go back to kind of the remedy to the pink apparel piece of the business. You talked about some corrective actions. What exactly sort of did you identify as the core of the issue? I would imagine that you immediately started changing the merchandise that takes about six months or that takes us kind of into the first at the end of the first quarter, second quarter. But what exactly do you think that the issue is? And then for TJ, should we assume two things on Adore Me? Should we assume that the sales seasonality also follows the cost, right? So a little bit more than BS sort of in the first quarter or so, and then maybe kind of matches the seasonality to BS in the back half. And then for advertising expense, what was it? for the year. And I would imagine that Adore Me being DTC is significantly higher. So how should we think about ad expense consolidated for 2023? Thank you so much.
spk03: Yeah, a lot to unpack there. We'll have a go. We're making notes frantically on all the questions you asked. I'll go to Pink. What's the challenge on Pink Apparel? Well, Pink Apparel has been remarkably successful for us over a long period of time. It's been a relatively edited and tight assortment of frames with renewed graphics over time. It's been a very high margin business and a very predictable business for us. So, you know, boy, we've enjoyed this part of the business over the years. And often when businesses are really, really good and very healthy, we forget to renew them and we lose focus on the product lifecycle. Maybe we hang on to them a little longer than we probably should. So as we look now at what's happening in the marketplace at large, Relative to our pink apparel assortment we say yeah, we're missing some stuff We're not quite as trend right as we should be and we're overly reliant on a logo business and overly reliant on frames that we've had for a number of years so time for a refresh and So thinking differently about logo thinking about being more minimal less over thinking about new fabrications thinking about new raw materials and better outfit starters, and just a fresher approach. So we have completely scrubbed all aspects of the business. We've edited out things that we think don't fit. And we've accelerated quickly with the help of our vendor base things that we think will be really on trend and fashion forward. And we'll be ready to come out of the box strong, particularly for the fall season. But we should see early signs of recovery in late Q2. TJ, do you want to take the later questions? Yep.
spk05: Adrian, the seasonality of the Adormi business, as you kind of alluded to, first quarter is historically their better quarter. followed by fourth, and then obviously Q2 and Q3 are a little lower, very similar to the VS business, as you mentioned. So that's about as low as we're going to go on the details on Adormi. I think the second part of your question around advertising for 2022 for the VS and co-business, as Martin has articulated a handful of times most recently in our investor day, We typically target about 5% to 5.5% of sales for VS in terms of marketing. I don't see that changing. In terms of absolute dollars, the rate of sales might tick up a little bit depending on where volume goes, but that expense level is something that we're comfortable with from a dollar perspective. I'm not going to go deep on the Adore Me P&L. I'll just say, as you mentioned, in a D2C environment, in a growing growth business, You know, their advertising rate of sales is going to be, you know, meaningfully higher than what the VS and Co. business experiences historically, but we're comfortable with that. We knew that that's not a surprise to us. We're more focused on driving top line with our partners at Adore Me and more focused on really driving that operating leverage on a go-forward basis on the operating profit line. Hopefully that helps, Adrian.
spk03: Yes, it does. Hey, just before we take the next question, we did a fact check here on sleep participation of our business. I said 15 to 20 across the year. It's more in the fall season, substantially more in the fall season. I think closer to 20 is a better answer than 15 to 20. So think about 20% plus for sleep participation. Next question, please.
spk06: Thank you. Our next question comes from Corey Tarlow with Jefferies. Your line is open.
spk15: Hi, good morning, and thanks for taking my question. So just to double-click again on this pink apparel dynamic, and I think you used the phrase number of years. So as you think about this pink transformation that you're undergoing within apparel, what gives you the confidence that it's going to work, number one? And then number two, could you talk about maybe what you saw on the intimate side at Pink, just so we can get a sense for how the business is performing overall. And then TJ, on the flat EBIT guide for the year, I think that with freight coming down, shouldn't that seemingly be a benefit to margins this year? So how do you think about the flat EBIT margin guide within the context of freight coming down and all the supply chain issues and inventory issues that we saw
spk03: last year now now getting a lot better thanks yeah I'll take the pink question so the fundamental question how do we know if things are going to work or not when we change merchandise well we have a pretty rigorous process of testing we have customer panels that we use to get feedback the the community that I rely on most is our stores community we had our regional managers from across the country in town last week and I personally went through the Fink assortment with them and they were extremely excited. They know our customer inside out and they gave us a very strong thumbs up. So where's my confidence level that it's time to change? Extremely high. Where's my confidence level that we'll hit it right with what we've got in the back half of the year? Well, you never know for certain, but I feel pretty good about what we've got. The good news for Pink is that our Intimates business is strong and continues to be good. Intimates has been increasing as a proportion of the business over the last several years steadily. It is our focus. We are a lingerie company, and being best at bras in both of our big brands is the most important thing to do. So that business, Pink Intimates, is healthy and growing.
spk05: Yeah, Corey, in the second part of your question, I can appreciate the flat EBIT rate guide for the year. We would expect, in fairness to your question, we would expect the gross margin rate for the year to be slightly higher than last year. As you mentioned, the supply chain pressures certainly have abated. As we move into the fall season, we'll see if there's the typical kind of seasonal build in rates or not or where rates go, but clearly here in the spring season, rates both on a container basis and from an air perspective are lower than last year and getting back close to pre-pandemic levels. So good for us. We're happy about that. I think the flip side is from an SG&A perspective, and we kind of mentioned this earlier, we've known all along there were certain parts of the business that we were going to want to invest in here in 2023. As I mentioned, just as a side note, the expense profile for a dorm is slightly different than ours. That's some deleverage on the SG&A line. However, where we're really seeing investment is in three key areas. First off, technology. As we start to increase the amount of focus on the customer experience and customer integrations with Chris Rupp and her team, that's an investment we're happy to make and we're confident we'll see benefits from that as we move throughout the year. I think the second piece is I'll just remind people that we are in the middle of separating from our former parent company or limited brands, separating into two different business, Bath and Body Works and Victoria's Secret. From a technology standpoint, as separation, we indicated in the two brands that there would be a $200 to $300 million incremental spend in terms of technology. And that each business would have roughly half of that so I'm happy to report that from a BS perspective We're trending towards the lower end of that technology spend as it relates to separation Having said that the bulk of the large systems to be separated the bulk of the labor and activity associated with that Is right in front of us right now? having separated a couple of systems successfully already in the month of February and We have many more to come here in the spring season. So the point in mentioning that, Corey, is the cost associated with that will peak here in the spring season or in 2023. That's an investment, again, we're happy to make. I think the second piece, building on Adrian's question, we're going to continue to lean into the marketing spend to invest in the business, both at top of funnel and also to support the new version of our fashion show, which is to come later this year. So we're going to invest in our marketing expand. We're going to invest in Store of the Future. As Martin mentioned, roughly $100 million increase in store-related capital associated with taking Store of the Future from being 2% or 3% of our fleet at year end to upwards of 10% or more as we exit 2023. And then the fourth item I'd mention as it relates to SG&A increase year over year, clearly 2022 was a difficult year for the business and the level of incentive payout reflected that. As we come into 2023 and we establish new targets, obviously we refill the incentive bucket that would be an increase year over year for achieving these targeted levels of profitability or better. So hopefully that helps. Corey, understand where there are three or four areas where we're making investments for the future of the business, even though the current environment remains a bit challenging.
spk15: Got it. That's helpful. You talked about investments that you're making. Could you just update us on the $250 million in cost savings plans? And then also, are you planning to make any more acquisitions this year?
spk05: Last question I won't answer, which is probably not surprising to you, but the first part of the question, Corey, I think you were referring to the Transform the Foundation goal that we set in October in our investor day at $250 million. In our prepared remarks, I think we indicated that less than a third of that or a little less than a third of that happens here in 2023, and I would suggest that's fairly evenly split or maybe a little bit more tilted towards expense and a little less towards margin here in 2023. So slight margin benefit, more benefit on the expense line to fund some of the growth initiatives that I mentioned. As we move through 2023, get to the fourth quarter and into 2024, that's really where you'll see the amount of savings from the Transform the Foundation goal start to grow. and it'll grow most notably from a margin perspective across the goods around initiatives that we're working on with, you know, Dean and Chris Cagliari and their leadership team. Great. Thank you very much.
spk04: Yep. Okay. I think we've got time for one more question.
spk06: Thank you. Our next question comes from Jonah Kim with TD Cowan. Your line is open.
spk08: Thank you for taking my question. Just a quick one. Any early learnings from the loyalty program and What are you seeing in terms of the customer retention trends and how you plan to leverage the program to further increase retention rate? Thank you so much.
spk03: Too early to declare victory on the loyalty card. We've only been out for a week. Again, referencing the time I spent with our stores team, they were super energized by it. Take-up has been good. Reminder, this is free. And we convert all of the customers who are currently in our credit card system onto the program. So we should be at about 3 million people in the system by the end of this month. So there's a sizable body, sizable community that are going to benefit from this program. And we feel really good about where it's at. You know, we've got new benefits for customers. We've got an all-access tier at $300. We've got a VIP tier at $750. We've got features that we've never had before that will enable consumers to talk to each other as well as talk to us. So we think it's going to be a great program. It's been a long time in coming. And I think the benefits will come through in the back half of the year. That's probably all we've got time for, right, Kevin? Yep. It's 855. We committed to finishing at 855. So thank you all for your interest in our business. Wish you well. Thank you.
spk06: That concludes today's conference. Thank you for participating. You may disconnect at this time. you Thank you. Thank you.
spk21: Thank you. Thank you.
spk06: Good morning. My name is Amanda, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Victoria's Secret & Company's fourth quarter 2022 earnings conference call. Please be advised that today's conference is being recorded. All parties will remain in a listen-only mode until the question and answer session of today's call. I would now like to turn the call over to Mr. Kevin Wink, Vice President of External Financial Reporting and Investor Relations at Victoria's Secret & Company. Kevin, you may begin.
spk02: Thank you, Amanda. Good morning, and welcome to Victoria's Secret & Company's fourth quarter earnings conference call for the period ending January 28, 2023. As a matter of formality, I would like to remind you that any forward-looking statements we may make today are subject to our safe harbor statements found in our SEC filings and in our press releases. Joining me on the call today is CEO Martin Waters and CFO TJ Johnson. We are available today for up to 45 minutes to answer any questions. Certain results we discuss on the call today are adjusted results and exclude the impact of certain items described in our press release and our SEC filings. Reconciliations of these and other non-GAAP measures to the most comparable GAAP measures are included in our press release our SEC filings, and the investor presentation posted on the investor section of our website. Thanks, and now I'll turn the call over to Martin.
spk03: Thanks, Kevin, and good morning, everyone. Before we dive right into the quarter, I want to first share my deepest appreciation for the hard work and dedication of our associates and partners all around the world. I'm especially thankful for the team's continued commitment to the revolution of our brand and for all they're doing as we push forward our strategic growth plans. I'm delighted by the connections we're making and deepening with our customers as we aspire to become a Victoria's Secret where everyone feels seen, respected, and valued. And of course, I'm delighted to welcome Adore Me associates to our family for the first time this course. A welcome, welcome. And as we look back on 2022, our first full year as an independent public company, I wanted to spend a few minutes reflecting on the key actions that we've taken over this past year in support of our strategy and positioning for the long term. It's been a year filled with innovation and many firsts for our customers and our brands, to name a few. We debuted LoveCloud, both a proof point in our best-of-browse story and our most inclusive marketing campaign ever. We shared our first bilingual campaign for Victoria's Secret Beauty featuring Camila Cabello. We launched Bear, our first fine fragrance pillar in five years, and a one-of-a-kind scent that is personal to each individual. We introduced our inaugural global brand campaign, Undefinable, that celebrates individuality and diversity. We extended our channel distribution and now offer an edited assortment of Victoria's Secret and Pink on Amazon and a natural extension to continue to grow our business. We deployed a new digital bra fit technology and have begun to make meaningful improvements to our digital experience to improve the customer journey. We expanded our store of the future fleet to 52 stores worldwide, and we released our first ever ESG summary report in the spring, our ESG materiality report in the fall, and we look forward to publishing our first full ESG report next month. This past year, we also made acquisitions and developed partnerships and organized ourselves to fuel our future growth. Importantly, we inquired the digitally native Intimates brand Adore Me to further enhance our market leadership in Intimates and strengthen our ability to put technology at the forefront of everything we do. Internationally, we accelerated our growth as we entered new markets like India and Israel and completed the joint venture agreement with Regina Miracle in our China business. We invested in women-owned and run businesses, including a minority stake in Frankie's Bikinis, to help us reclaim our leadership position in SWIM, and announced a partnership with inclusive lingerie brand Elomi. We announced a new corporate leadership structure, uniting the Victoria's Secret and Pink brands into a single, collaborative organization centered around our focus on the customer and built to capitalize on efficiencies to yield stronger growth. And as part of that new structure, we welcomed a chief customer officer, a chief supply chain officer, and also named a chief growth officer, giving us focused leadership expertise to steer us to the next stage of our transformational journey. Additionally, in 2022, we continued our commitment to women, our associates, our partners, and our communities. A few examples include we brought on more models and ambassadors of diverse sizes, ages, abilities, and identities. This past year, we achieved third-party pay equity certification for all genders, races, ethnicities, and intersections of those identities. We're committed to maintaining our status as a leader in pay equity. We're especially proud of our associate satisfaction metrics, with 87% of our associates reporting that they feel proud to work at VS&Co. We welcomed a new independent director and seven of our eight board members are women, mirroring our customer base. We launched VS and co-essentials and will supply more than one million young women and young adults with undergarments by 2025. And we maintained our partnership with Pelotonia and administered the first grants to researchers as part of the Victoria's Secret Global Fund for Women's Cancers. And we're certainly not stopping there. Already in fiscal 23, we launched the new Victoria's Secret x Naomi Osaka collection, a first design collaboration with Victoria's Secret collective partner Naomi Osaka. The collection features the Forever Bra with our first ever bra pad that can be recycled in a closed loop system. Our first-ever Frankie's Bikinis Times Victoria's Secret swim collection is now available exclusively at Victoria's Secret and inspired by founder Francesca's beloved early memories of shopping at Victoria's Secret. We announced the rollout of our new Victoria's Secret and Pink Customer Loyalty Program, which is our first rewards program to allow customers to earn points regardless of payment method. And we were recently named by Newsweek as one of America's greatest workplaces for diversity. So as you see, we've been busy. And at our investor day in October, we announced our intent to become the world's leading fashion retailer of intimate apparel, guided by our three key pillars. Number one, strengthening our core. Number two, igniting growth. Number three, transforming the foundation of the company. We believe we're two years into a five-year journey in the turnaround of our business, and we have a clear roadmap to be the world's leading fashion retailer of intimate apparel. And now I'll dive into the results for a few minutes. For the fourth quarter, despite macroeconomic environment that remained challenging for our customers, we controlled what we could control while navigating a highly promotional retail landscape. We delivered adjusted operating income and adjusted earnings per diluted share results for the quarter above our most recent guidance. This represents the sixth consecutive quarter since the separation that we've delivered adjusted operating income and adjusted earnings per share results within or above our guidance. And importantly, we exited the year with Victoria Secret and Pink inventory levels down double digits on an adjusted basis, prudently positioning us as we begin the new year. We believe this performance in a challenging environment continues to demonstrate our position of strength and highlights our dominant domestic market share leadership position and the stability of the financial platform that we've created. We remain steadfast in our belief that we've stabilized our business model to weather difficult times and our position for significant operating leverage in more normal economic times. In the fourth quarter, our adjusted operating income of $280 million and adjusted earnings per diluted share of $2.47 were both above our most recent guidance. Sales declined 7% in the quarter compared to last year, which was in line with our expectations. Traffic was up in our stores and online in the quarter, and we were encouraged by our sales performance during peak periods of time during the quarter as customers responded positively both in stores and online to our marketing messages and targeted promotional activity. Our conversion rates were down in the quarter compared to the fourth quarter last year, but remained above pre-pandemic levels. As a result of the positive response to our aggressive promotional position and the strength of peak selling periods, our average unit retail was down in the quarter as compared to fourth quarter last year, but again, remained healthy and at or near record highs in most categories, highlighting a customer who is very cautious and cost-conscious in this current environment. From a merchandising perspective, we remain the leader in domestic market share for the Intimates category, and on a rolling 12-month basis, we experienced slight growth compared to last year. From a category perspective, starting with Victoria's Secret, beauty was our best-performing business, followed by sleepwear and bras. Within pink, Intimates outperformed sleepwear and apparel, which had a difficult quarter. While pink apparel has been a consistent challenge during the last couple of quarters, the underperformance gap widened during the holiday season, and we've already begun to urgently reimagine the pink apparel strategy, assortment, and positioning with our customer, and we will see that impact in late Q2. The pink apparel impact alone was a drag of more than four points on the fourth quarter for the company, so it's a very high priority for me going forward. Our international business continues to perform very well. Total international system-wide sales were up double digit in 2022, and the business has been profitable in each of the last four quarters. Business continues to experience momentum, with most countries performing very well, and we continue to be optimistic about growth plans to expand our international footprint, both in numbers of stores and numbers of countries around the world. As we begin the new year, we're mindful that domestic economic environment continues to be challenging and continues to put pressure on our customers. However, we're evolving and innovating our business, focused on our three key pillars, and we have organic growth strategies and new customer experiences well identified for 2023, including the recent launch of the Victoria's Secret and Pink Customer Loyalty Program and a pipeline of bra launches. We recently acquired Adormi, as you know, a technology-led growth vehicle. We plan to leverage some of their technology on our scale platforms starting in the second quarter and continuing through the fall season. Our international business has momentum with partner expansion plans for new stores and new countries planned throughout the next two years. And most importantly, we're a bra company and the market leader in the intimates category positioned for future growth both in our core and with Adormi now in the family. So while the macroeconomic environment remains uncertain, we're assuming sales trends and comparisons will improve through 2023 as we anniversary soft sales trends, which began in the second quarter of 2022. And as we begin to benefit from our new growth strategies and new customer experiences being rolled out through the year. With this in mind, we expect sales for 2023 to increase in the mid-single-digit range compared to 2022. Our forecast assumes our Victoria's Secret and Pink businesses relatively flat over the year for 52 weeks and approximately one to two points of growth due to the 53rd week in fiscal 2023. Our forecast also includes Adormi, which is now in our results in 2023 and forecasted up in the mid-teens compared to their most recently completed fiscal year. At this level of sales, we expect our adjusted operating income rate for 2023 to be similar to 2022. Given today's challenging environment, we believe an adjusted operating income rate in the high single digits demonstrates stabilization of our business and represents a solid base we will leverage when more normal macro trends return in North America. For the first quarter, we expect sales to decrease in the mid-single digit range compared to the first quarter last year and forecasted adjusted operating income in the range of $55 to $85 million. As we move forward into the new year, we remain committed to optimizing our performance by focusing on what's within our control, our brand transformation, being best for us, enhancing the customer experience, and a relentless focus on cost and inventory management. Led by our two category-defining brands, a merchandise leadership position in intimates and beauty, and a global business position to increase our market share, our goal is clear, to be the world's leading fashion retailer of intimate apparel. Our focus as leaders and as a company is on ensuring we are a future-facing business that becomes more and more culturally relevant in this shifting environment. We're confident in our opportunities to remain committed and remain committed to delivering long-term sustainable value for our shareholders. Thank you, and that concludes our prepared remarks. At this time, we'd be more than happy to take any questions you might have.
spk06: Thank you. Our first question comes from Laura Lane Hutchinson with Bank of America. Your line is open. Thanks. Good morning.
spk16: Sounds like you do expect some sales recovery as the year progresses. Can you just talk through the areas of the business where you see the most opportunity to grow and then also how much you think you will use the Adore Me platform or technology to try to grow the Victoria's or Pink businesses? Thank you.
spk03: Yep, I'll take a crack at that one. So as it relates to growth, obviously the most important area for us to focus on is bras. We're a bra company. That's where we put most of our energy. And while we are active in other categories, health in the core of the business is the most important thing we do. So you heard me say at the time of Spiv, that we would be having at least two bra launches, major bra launches per year, and so it has been. This year will be no exception. In fact, we'll probably have more than two big bra launches. I don't want to say more about that yet for competitive reasons, but we're very excited about the plans that we have in the core of the business. So that's one. The second I would call out is pink, where, as I mentioned, we have had a difficult time in the last 12 months, And it's time for some urgent reinvention. And I've seen that reinvention, and I'm super excited about it. Customers will start to see it towards the end of Q2. It's a new design direction. It's a much more fresh approach. More and better outfits start as more modern raw materials and fabrications emerge. It's a rebuild of the use of our logo, more minimal, less overt logo, and an exit from some of our legacy graphics. So a lot going on in that very important part of the business that I think bodes well for the back half of the year. And you also asked about Adormi. As I've said previously, we're super, super excited about Adormi. It's a fantastic company, which just in and of itself is a great growth vehicle for us. But I think there are three ways that we can leverage their technology going forward. One is we're going to test selling an edited assortment of Adormi merchandise on our site. We're going to test that that's incremental to our system. That'll be up towards the end of Q2. We're excited about that. Secondly, we're going to leverage the technology in try-on at home that Adore Me has perfected, and we're going to apply that to our much larger scale customer base in Victoria's and Pink, and the same with subscription services that will be applied towards the back half of the year. So there are many, many ways in which we can leverage Adore Me technology, but we're focusing on those three initially, and then there'll be more in the out years as time goes by. I hope that helps.
spk06: Thank you. Thank you. Our next question comes from Ike Borchow with Wells Fargo. Your line is open.
spk17: Yes, hi. Good morning. This is Kaydon for Ike. I guess my first question, Martin, just to follow up on Pink, could you remind us how much in revenue Pink was in 2022? And I am curious, you know, you noted the new organization structure at BS between lingerie and Pink. Can you just think about or help explain how you think the new structure maybe will help benefit the brands? You know, I think historically we thought that maybe having the separate structure might be helpful in terms of the guardrails around the two. So I'd be curious just, you know, your view on this structure here. And then I have a follow-up on SG&A.
spk03: Yeah. Thank you for the question. So sleep is a very important category for us, and we think about it in two chunks. The first part we call sexy sleep, which is very provocative merchandise leverages up of the very sexy and dream angels collections. And then the second part of sleep is more casual sleep, which did particularly well during the COVID period and obviously is a major part of gifting during the fourth quarter. So the participation of sleep changes throughout the year depending on the season, but think about 15 to 20% of our total system across Victoria's and Pink. That would be directionally close enough for you at this stage. What's the benefit of putting Pink and Victoria's together? To a large extent, there is a significant crossover of the customer between the two brands. To a large extent, we're in the bra business in both franchises. 50% of the pink business is bras and intimates. I think it makes sense to build our entire assortment with a single eye to how the customer traverses through the bra and panty experience. And so for the first time, I think, in our history, we have merchant leadership that is considering how the customer sees the entirety of our intimates category. I think that's very important. There are also benefits in the sort of the back of house in the way that we source and the way that we merchandise that should lead to greater efficiency. In some cases, we're buying the same merchandise. but with different design teams and different factories. It makes sense to have a single eye across those two. So those are the main reasons. One, customer-facing. Secondly, organizational efficiency on the back end for us.
spk17: Great.
spk03: That's helpful. Welcome.
spk17: Thank you. I just had one quick... Go ahead. I'm sorry. Sorry. I just had one quick follow-up on SG&A. You guys noted in the commentary with the earnings release, you know, certainly it seems like there are some priorities this year for spend between tech investment, incentive comp, you know, supporting Adore Me. I guess, you know, to the extent that the top line remains variable, I guess I'm just curious on the flex. on the expense front, just given that it seems like those investments maybe have a little less flexibility. We're just thinking about the SG&A flex to the extent to secure that high single-digit margin this year. Thank you.
spk05: Yeah, thanks for the question, Kate. I think over the last several quarters, I think the business has demonstrated a very capable flex model, as evidenced by each of the last three quarters when North America business has been challenging. Expense dollars in total have been down in excess of $40 million a quarter. So I feel as if the business from a store payroll and distribution and logistics standpoint particularly has flexed quite well as sales have been somewhat volatile. I think supplementing that is I'll just underline the Transform the Foundation savings goals that the business has set for the next three years. really a continuation of activity from 2022. So that $250 million goal over the next three years, I think we said a little less than a third of that will actually happen here in 2023. So we feel like we have multiple levers, both on the expense and cost of goods sold lines, to not only drive bottom line performance, but also insulate us a little bit if trends remain volatile here in North America. The teams are doing a very good job of flexing and executing against the expense initiatives, even here in the first quarter where we're highlighting some volatility in sales continuing in North America. Our SG&A guidance, you take the 32 to 33 percent, Kate, and put that on the volume estimates. You get an SG&A range of roughly 460 to 470 in terms of dollars. Within that, the VS and Pink business or the North America business primarily is about $430 million or flat to last year in the first quarter, even with those investments in technology, marketing, and also bonus-related costs. So hopefully that helps you understand a little bit better kind of also the volume of number of different initiatives and ways that we're flexing the model. to keep costs under control, not to mention the wonderful performance on inventory levels that the merchandising and merchandising planning and allocation teams have executed to here. So, hopefully that helps.
spk17: Thanks very much. Best of luck.
spk05: Thank you.
spk06: Thank you. Our next question comes from Alex Stratton with Morgan Stanley. Your line is open. Great.
spk18: Good morning, Martin, TJ. Thanks for having my question today. Just two from me. First, on the 1Q guide, it looks like it assumes the underlying revenue CAGR to 2019 accelerates a bit from the fourth quarter. So I'm wondering, does that mean you're seeing acceleration quarter today, or how should we think about what's embedded there? And then secondly, the comment on the slight growth in market share. I'm just wondering, like, what did the category grow, and maybe what do you include in that market? I'm just trying to understand how your share changed year over year. And also, if there's anything you can share on bras there, that would be great. Thank you.
spk03: When I take the second question, TJ, you can address the first question. So market share, we have lots of different measures of market share. The one that we use most is intimates as a combined category, which is essentially bras and panties. Essentially, it excludes fine, what one might traditionally call lingerie, meaning sexy sleep. So in that definition, we have 20% market share. And what we see within that 20 is that the BRA mix is stronger and the PENTI mix is less Why would that be? For us, it's a harder business, more competitive business, higher barriers to entry, fewer competitors, and frankly, we're better at it. It's our most important economic engine. Panties is more of a cut-and-sew business. It's easily accessible to every player. It has low barriers to entry, and so it's a more competitive and price-led market. So that's the key distinction we look at there. And as I said earlier, essentially flat across the 12 months, maybe 0.1 point of TJ, do you want to take the second question about acceleration?
spk05: Yeah, Alex, as it relates to Q1 sales, candidly, I'll suggest to you that we're looking at more current trends in our business relative to performance, more so than back to 2019, understanding the business was in a much different place and it was in much more aggressive kind of liquidation mode or inventory liquidation mode back during those times. So if I think about the most recent trends in the business, and third and fourth quarter or fall season with North America predominantly being down high single digits, very strong performance in our international business, which was accretive to the total sales numbers that we reported in the fall season. In large part, we expect those trends to continue into first quarter. So from a first quarter perspective, we would expect North America to be down high single digits We would expect the international business in terms of system-wide retail sales to still be up in the low double digits. We're seeing that happen now and we're seeing nice response and kind of growth quickly in China in particular as stores have begun to reopen. So feel very good about the international part of the business. And then obviously we get the benefit of reporting Adormi in our results for the first time. And in the first quarter alone, that will add about a four to four and a half point increase in terms of growth. So that's how we get from negative high singles to negative mid singles with the addition of a dorming. I think the one item of note, because I know that in reading some of the sell side notes from last night and even this morning, the first quarter guide from a sales perspective was a little different than maybe some were expecting. I'll just underline for you something Martin mentioned in his prepared comments, and that was the drag in the quarter of the impact of pink apparel being challenging. That drag of about four points, we're expecting that to continue on into the first quarter and potentially into early second quarter until some of the new merchandise that Martin mentioned starts to arrive. So I think, Alex, if there's a slight disconnect in terms of our expectations for first quarter sales and maybe what the street was expecting. Clearly, in fairness to you, you didn't have visibility to our thoughts around pink and pink apparel. So hopefully that helps.
spk19: Thank you. Great.
spk06: Thank you. Our next question comes from Matthew Boss with J.P. Morgan. Your line is open.
spk09: Great. Thanks. It's Amanda Douglas on for Matt. So Martin, maybe to start, you cited expectations for higher promotional activity in the first quarter in the release. Could you expand on your mindset for promotional activity throughout this year as you manage the business with healthier inventories? And then maybe whether or not you see an opportunity for AUR growth with your new raw launches?
spk03: Yeah, thanks for the question, Amanda. So my mindset on promotional activity is consistent with what I've said in previous calls, and it has less to do with being over-inventoried or under-inventoried and more to do with getting fair share in a, or more than fair share, in a highly competitive environment. So when the consumer is feeling less affluent, when she has less money to put food on the table, when she has less money to spend on discretionary items, we all have to be as aggressive as we can in trying to get our share of that wallet. We're competing with beauty, we're competing with outerwear, we're competing with vacations, we're competing with all kinds of competitors who are after that discretionary spend and while the best way for us to compete on that is with newness and to talk about emotional content and you know fresh merchandise that's definitely the best way to go to market but also she needs a nudge in the promotional um in the sense of having a promotional reason to come and shop with us so that's what drives I think it's time to sharpen our – or it has been time during the fourth quarter to sharpen our elbows and make sure that we get a good amount of what's available in terms of discretionary spend. It doesn't have much to do with inventory. Our inventories are very healthy. We're well positioned. We're down double-digit on an adjusted basis. We have returned our agility to be close to where we used to be entering the season at like 70% bought, 30% open so that we're keeping our powder dry to enable us to chase the winners. So expect to see something of a continuation of our position from Q4 into Q1. And as it relates to the balance of the year, let's see how the health of the consumer stands up. I would be optimistic that we can lean more into newness and fresh fashion than promotion, but let's see how the consumer responds. The second question was about AURs. And yeah, I mean, when we are designing our architecture for bras, we're not just thinking about extracting more money from the consumer at the top end of the price range. We're thinking about what's the most competitive build across the board. And so if actually having a stronger opening price point than we've had historically is a better a better competitive activity in this environment, then that's what we'll do. We're not just driven by it has to be all about AUR. We're more driven by what makes most sense for the consumer, what gives her the best broad range of products across the spectrum of her occasion and emotion needs throughout the year. But, yeah, AURs are pretty healthy, higher than they were pre-pandemic, and we feel good about what's coming.
spk06: Does that conclude your question? Yes, thank you. Thank you. Our next question comes from Simeon Siegel with BMO Capital Market. Your line is open.
spk10: Thanks. Hey, everyone. Good morning. Martin, any help contextualizing the size of the pink apparel now versus historically and maybe if you have a view on where it should be in the future? And then, Martin or TJ, you called out higher adormi expenses weighing on 1QSG&A. I believe would it also lift gross margins? And then just the last quick one, just clarifying your guidance. Does it not account for any incremental buyback, including the remaining on the ASR? And then maybe just a similar vein, interest is growing. So just any general thoughts on how you're approaching debt versus buybacks? Thank you.
spk03: I'll let TJ take the financial question. Good morning, Simeon. Just give me the pink question again. What specifically are you asking about pink? How large is pink apparel?
spk10: Maybe how is that in the context?
spk03: How large was it?
spk10: Where do you want it to be?
spk03: So in round numbers, the pink business is approaching $3 billion. Half of it is intimate, so the other half is apparel and sleep. I won't give you the split between apparel and sleep. You maybe have a guess at that yourself, but you can tell from that framing that it's a significant part of the business, and that's why when it was underweight in the fourth quarter, it had such an impact on the total company at four points. Hope that helps, Simeon. T.J.? ?
spk05: Yeah, Simeon, on the Adormi piece, I just want to clarify. I would think about it this way. I would think about their model is different than the VS&Co model from the perspective of it's a digital-only business in large part. They have five or six stores more in test mode than anything else, but it's a digital business for the most part. Their margins from a gross perspective are in the mid-50s, So that would be slightly rate accretive to the company, which means, you know, given their operating margins are similar to ours, their expense levels are going to be in the mid to high 40s. And we're comfortable with that. That's been successful for them. They've grown their business consistently year after year in the 20-plus percent range, and we're forecasting mid-teens here again in 2023. So we're comfortable with the financial model here. The point in mentioning it here as it relates to expenses is obviously it shows up in our P&L for the first time here in first quarter. So their expense levels also tend to be a little more front-loaded from a marketing perspective in two shapes. First off, Valentine's Day obviously as it relates to the biggest holiday of the year in the first quarter, they've appropriately been aggressive going after the customer. when there's a high intent to buy. Additionally, from a marketing perspective, a high intent to buy and a high level of interest in the first quarter with their customer gives them an opportunity to really kind of feed the pipeline for the balance of the year when you think about their model being a high subscription model basis. So earlier they can get customers in the funnel better, similar from a try-on-at-home perspective. So we're very comfortable with the model we acquired. It's just helping you and the street understand that the expense profile is a little bit different than ours. The balance of the company, the VS&Co portion of the expense base, I'm very happy with how the teams are managing that and how it's performing. In terms of the buyback and debt question, yes, we are assuming the full $250 million share repurchase in our weighted average share count. I'll just point out that the ASR is predominantly the activity for spring. As we mentioned in our release, the agreement runs through the second quarter. The second piece to that is, as you know, coming out of the spring season, we'll head into our peak borrowing time or cash trough debt peak. in terms of purchasing inventory for holiday season predominantly in the third quarter. So the point in mentioning that is the balance of the share repurchase activity will likely happen later in fiscal 23 and therefore not have a significant amount of weighting on the WIOs for the year. The last part of your question from a debt perspective. Our model assumes for the most part throughout the year we'll be carrying the balance of the ABL that we came into the year with, the $295 million of ABL balance we came into the year with. We'll largely carry that for the majority of the year until we get to holiday cash season. And the importance in understanding that is really the first quarter of this year, Simeon is actually a cash outflow quarter for the business in two or three respects. I think first off, 401k matching, bonus payouts, withholdings get paid out in the first quarter. Additionally, the ASR execution that I mentioned happened early in the first quarter. And then the third component that we've described in our filings is really a, I'll call it a real estate or legal settlement that we anticipate paying out in the first quarter as it relates to a property in New York City. So all of those items suggest that the first quarter is a cashed outflow quarter and therefore, again, we'll be carrying the ABL for the majority of the year until after we get holiday cash coming in. Hope that helps.
spk11: Perfect. Thanks, guys. Best of luck for the year. Thank you.
spk06: Thank you. Our next question comes from Omar Saad with Evercore Partners. Your line is open.
spk14: Good morning. Thanks for taking my question. Just a couple quick follow-ups. I was hoping you guys maybe talk a little bit more about performance across some of your store formats and channels, off mall versus mall, the store of the future. Then maybe also something you mentioned at Investor Day, but I haven't heard an update on the marketplace strategy. Thanks.
spk03: Yeah, good questions. Thank you for that. Let's talk about real estate. Our store of the future pilots, the first pilots that we opened that have been open for a reasonable period of time, are performing up high single digit relative to their control group. So up high single digit relative to their control group. So that's good. The first stores that we opened in the new format were in off-mall locations, and those have been good. All of them are projecting to be profitable, which is good news, with particular strength in the stores that are in outlets. So I don't mean discount outlets. I mean off-mall outlet locations where we put a full-price store. Those have been particularly good, and there are a number of those across the United States of America where we see opportunity. So as it relates to the real estate strategy of having a higher participation in an off mall, we feel really good about where we are. As it relates to the deterioration of the fleet in malls that are vulnerable, no new The situation hasn't gotten any better. The situation hasn't gotten any worse. It's about where we expect it to be. So we're projecting that for the year ahead, we'll have 15 to 20 new stores, all of which will be in store of the future, and about 50 renovations that will move some of our better and bigger, higher-performing stores from their current old format to new store of the future format. Incidentally, in many of those stores, Occasions not all of them, but many of those occasions we take the opportunity to downsize Sometimes bring pink from being standalone into the box Which leads to higher sales densities and more efficiency in terms of the way that we run the operation so we feel pretty good about that and there's about a hundred million dollars more capital going into our stores organization our stores plate this year than we had in prior year, so Hope that helps in terms of formats the second question was marketplace yeah yeah yeah thank you and curated marketplace so when we started working with parties I'm going to say a couple years ago it was a little bit of across the board you know lots of different brands particularly in swim too many brands frankly when the new management team took over we determined that the marketplace should be curated and it should be curated on the basis of three things one Does this brand get us access to a category of merchandise where we're currently underweight? Number two, does this third-party relationship get us access to a customer base where we're currently underweight? And number three, does this third-party relationship bring a halo to the overall house of Victoria? And we feel really good about where we are now in that the curation looks a lot like what I just said and is helping very much. We also see that where customers buy into those third parties, They also buy into Victoria or Pink at the same time, and they're our most valuable customers with the highest spend per customer. So is it an important part of our strategy to go forward? Yes, it is. We think it's a very, very good tool, and it's an area where we can broaden the appeal of the franchise without needing to do all of the lifting within Victoria on her own. So hope that helps.
spk13: Thanks for the call, Martin.
spk06: Thank you. Our next question comes from Adrian Yee with Barclays. Your line is open.
spk00: Oh, great.
spk07: Thank you very much. Martin, I was wondering if we can go back to kind of the remedy to the pink apparel piece of the business. You talked about some corrective actions. What exactly sort of did you identify as the core of the issue? I would imagine that you immediately started changing the merchandise that takes about six months or that takes us kind of into the first at the end of the first quarter, second quarter. But what exactly do you think that the issue is? And then for TJ, should we assume two things on Adore Me? Should we assume that the sales seasonality also follows the cost, right? So a little bit more than BS sort of in the first quarter or so, and then maybe kind of matches the seasonality to BS in the back half. And then for advertising expense, what was it? for the year. And I would imagine that Adore Me being DTC is significantly higher. So how should we think about ad expense consolidated for 2023? Thank you so much.
spk03: Yeah, a lot to unpack there. We'll have a go. We're making notes frantically on all the questions you asked. I'll go to Pink. What's the challenge on Pink Apparel? Well, Pink Apparel has been remarkably successful for us over a long period of time. It's been a relatively edited and tight assortment of frames with renewed graphics over time. It's been a very high-margin business and a very predictable business for us. So, you know, boy, we've enjoyed this part of the business over the years. And often when businesses are really, really good and very healthy, we forget to renew them and we lose focus on the product lifecycle. Maybe we hang on to them a little longer than we probably should. So as we look now at what's happening in the marketplace at large, Relative to our pink apparel assortment we say yeah, we're missing some stuff We're not quite as trend right as we should be and we're overly reliant on a logo business and overly reliant on frames that we've had for a number of years so time for a refresh and So thinking differently about logo thinking about being more minimal less overt thinking about new fabrications thinking about new raw materials and better outfit starters, and just a fresher approach. So we have completely scrubbed all aspects of the business. We've edited out things that we think don't fit. And we've accelerated quickly with the help of our vendor base things that we think will be really on trend and fashion forward. And we'll be ready to come out of the box strong, particularly for the fall season. But we should see early signs of recovery in late Q2. TJ, do you want to take the later questions? Yep.
spk05: Adrian, the seasonality of the Adormi business, as you kind of alluded to, first quarter is historically their better quarter. followed by fourth, and then obviously Q2 and Q3 are a little lower, very similar to the VS business, as you mentioned. So that's about as low as we're going to go on the details on Adormi. I think the second part of your question around advertising for 2022 for the VS and co-business, as Martin has articulated a handful of times most recently in our investor day, We typically target about 5% to 5.5% of sales for VS in terms of marketing. I don't see that changing. In terms of absolute dollars, the rate of sales might tick up a little bit depending on where volume goes, but that expense level is something that we're comfortable with from a dollar perspective. I'm not going to go deep on the Adore Me P&L. I'll just say, as you mentioned, in a D2C environment, in a growing growth business, You know, their advertising rate of sales is going to be, you know, meaningfully higher than what the VS&Co business experiences historically, but we're comfortable with that. We knew that that's not a surprise to us. We're more focused on driving top line with our partners at Adore Me and more focused on really driving that operating leverage on a go-forward basis on the operating profit line. Hopefully that helps, Adrian.
spk03: Yes, it does. Just before we take the next question, we did a fact check here on sleep participation of our business. I said 15 to 20 across the year. It's more in the fall season, substantially more in the fall season. I think closer to 20 is a better answer than 15 to 20. So think about 20% plus for sleep participation. Next question, please.
spk06: Thank you. Our next question comes from Corey Tarlow with Jefferies. Your line is open.
spk15: Hi, good morning, and thanks for taking my question. So just to double-click again on this pink apparel dynamic, and I think you used the phrase number of years. So as you think about this pink transformation that you're undergoing within apparel, what gives you the confidence that it's going to work, number one? And then number two, could you talk about maybe what you saw on the intimate side at Pink, just so we can get a sense for how the business is performing overall. And then TJ, on the flat EBIT guide for the year, I think that with freight coming down, shouldn't that seemingly be a benefit to margins this year? So how do you think about the flat EBIT margin guide within the context of freight coming down and all of the supply chain issues and inventory issues that we saw
spk03: last year now now getting a lot better thanks yeah I'll take the pink question so the fundamental question how do we know if things are going to work or not when we change merchandise well we have a pretty rigorous process of testing we have customer panels that we use to get feedback the the community that I rely on most is our stores community we had our regional managers from across the country in town last week and I personally went through the Fink assortment with them and they were extremely excited. They know our customer inside out and they gave us a very strong thumbs up. So where's my confidence level that it's time to change? Extremely high. Where's my confidence level that we'll hit it right with what we've got in the back half of the year? Well, you never know for certain, but I feel pretty good about what we've got. The good news for Pink is that our Intimates business is strong and continues to be good. Intimates has been increasing as a proportion of the business over the last several years steadily. It is our focus. We are a lingerie company, and being best at bras in both of our big brands is the most important thing to do. So that business, Pink Intimates, is healthy and growing.
spk05: Yeah, Corey, in the second part of your question, I can appreciate the flat EBIT rate guide for the year. We would expect, in fairness to your question, we would expect the gross margin rate for the year to be slightly higher than last year. As you mentioned, the supply chain pressures certainly have abated. You know, as we move into the fall season, we'll see if there's the typical kind of seasonal build in rates or not or where rates go. But clearly here in the spring season, rates both on a container basis and from an air perspective are lower than last year and getting back close to pre-pandemic levels. So good for us. We're happy about that. I think the flip side is from an SG&A perspective, and we kind of mentioned this earlier, we've known all along there were certain parts of the business that we were going to want to invest in here in 2023. As I mentioned, just as a side note, the expense profile for a dorm is slightly different than ours That's some deleverage on the SG&A line. However, where we're really seeing investment is in three key areas. First off, technology. As we start to increase the amount of focus on the customer experience and customer integrations with Chris Rupp and her team, that's an investment we're happy to make and we're confident we'll see benefits from that as we move throughout the year. I think the second piece is I'll just remind people that we are in the middle of separating from our former parent company or limited brands, separating into two different business, Bath and Body Works and Victoria's Secret. From a technology standpoint, a separation, we indicated in the two brands that there would be a $200 to $300 million incremental spend in terms of technology. And that each business would have roughly half of that so I'm happy to report that from a BS perspective We're trending towards the lower end of that technology spend as it relates to separation Having said that the bulk of the large systems to be separated the bulk of the labor and activity associated with that Is right in front of us right now? having separated a couple of systems successfully already in the month of February and We have many more to come here in the spring season. So the point in mentioning that, Corey, is the cost associated with that will peak here in the spring season or in 2023. That's an investment, again, we're happy to make. I think the second piece, building on Adrian's question, we're going to continue to lean into the marketing spend. to invest in the business both at top of funnel and also to support the new version of our fashion show which is to come later this year. So we're going to invest in our marketing expand. We're going to invest in store of the future as Martin mentioned. Roughly $100 million increase in store related capital associated with taking store of the future from being two or 3% of our fleet at year end to upwards of 10% or more. as we exit 2023. And then the fourth item I'd mention as it relates to SG&A increase year over year, clearly 2022 was a difficult year for the business and the level of incentive payout reflected that. As we come into 2023 and we establish new targets, obviously we refill the incentive bucket that would be an increase year over year. for achieving these targeted levels of profitability or better. So hopefully that helps Corey understand where there are three or four areas where we're making investments for the future of the business, even though the current environment remains a bit challenging.
spk15: Got it. That's helpful. You talked about investments that you're making. Could you just update us on the $250 million in cost savings plans? And then also, are you planning to make any more acquisitions this year?
spk05: Last question I won't answer, which is probably not surprising to you, but the first part of the question, Corey, I think you were referring to the Transform the Foundation goal that we set in October in our investor day at $250 million. In our prepared remarks, I think we indicated that less than a third of that or a little less than a third of that happens here in 2023, and I would suggest that's fairly evenly split or maybe a little bit more tilted towards expense and a little less towards margin here in 2023. So slight margin benefit, more benefit on the expense line to fund some of the growth initiatives that I mentioned. As we move through 2023, get to the fourth quarter and into 2024, that's really where you'll see the amount of savings from the Transform the Foundation goal start to grow. and it'll grow most notably from a margin perspective across the goods around initiatives that we're working on with, you know, Dean and Chris Cagliari and their leadership team. Great. Thank you very much.
spk04: Yep. Okay. I think we've got time for one more question.
spk06: Thank you. Our next question comes from Jonah Kim with TD Cowan. Your line is open.
spk08: Thank you for taking my question. Just a quick one. Any early learnings from the loyalty program and What are you seeing in terms of the customer retention trends and how you plan to leverage the program to further increase retention rate? Thank you so much.
spk03: Too early to declare victory on the loyalty card. We've only been out for a week. Again, referencing the time I spent with our stores team, they were super energized by it. Take-up has been good. Reminder, this is free. And we convert all of the customers who are currently in our credit card system onto the program. So we should be at about 3 million people in the system by the end of this month. So there's a sizable body, sizable community that are going to benefit from this program. And we feel really good about where it's at. You know, we've got new benefits for customers. We've got an all-access tier at $300. We've got a VIP tier at $750. We've got features that we've never had before that will enable consumers to talk to each other as well as talk to us. So we think it's going to be a great program. It's been a long time in coming. And I think the benefits will come through in the back half of the year. That's probably all we've got time for, right, Kevin? Yes. It's 855. We committed to finishing at 855. So thank you all for your interest in our business. Wish you well. Thank you.
spk06: That concludes today's conference. Thank you for participating. You may disconnect at this time.
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