Good morning. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the L Brands Q2 2020 Earnings Conference Call. Please be advised that today's conference is being recorded. All participants are in a listen-only mode until the question and answer session at the end of today's presentation. To ask a question at that time, press star one. I would now like to turn the call over to Ms. Amie Preston, Chief Investor Relations Officer of L Brands. You may begin. Thank you.
Thank you. Good morning, and welcome to L Brands' Q2 earnings conference call for the period ending August 1st, 2020. As a matter of formality, I need 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 are Andrew Meslow, CEO of L Brands, and Stuart Burgdoerfer, interim CEO of Victoria's Secret and CFO of L Brands. All results we discuss on the call today are adjusted results and exclude the special items described in our press release. Thanks. Now I turn the call over to Andrew.
Thanks, Amie. Good morning, everyone. The Q2 of 2020 continued to be an unprecedented time for the world, for the retail industry, and for our business. Our first priority was and continues to be the safety of our associates and customers as we reopen the majority of our stores in the Q2. We adopted new operating models in all of our stores that focus on providing a safe shopping experience. Additionally, we focused on our distribution, fulfillment, and call center safety and maximizing our direct businesses. Overall, we delivered strong results in the Q2, and we could not have done so without the hard work and dedication of all associates across our business, in stores, distribution and fulfillment centers, call centers, and home offices. On behalf of the company, I'd like to express our deep appreciation for all of their efforts.
During the Q2, we also took a number of important steps to prepare Victoria's Secret and Bath and Body Works to operate as standalone, separate companies, improve L Brands profitability, maintain liquidity during the pandemic, and maximize our financial performance, all of which we outlined in the earnings commentary that we released last night. We also discussed in last night's commentary, despite our strong results in the Q2, we do expect results to moderate, and for a number of reasons, we have a cautious outlook for the H2 of the year. We won't repeat those prepared comments this morning in order to leave more time for all of your questions. Thanks, and back over to you, Amie.
Thanks, Andrew. That concludes our prepared comments, and at this time, we'd be happy to take any questions you might have. In the interest of time and consideration to others, please limit yourself to one question. Thanks, and I'll turn it back over to the operator.
Thank you. Our first question will come from Ike Boruchow from Wells Fargo. Your line is now open. One moment, please.
You mentioned in the press release about bankers being hired for the VS transaction. Can you give us an update on the timing of when you guys are expect-?
So Ike, you cut out there a little bit, but I think we got the gist of that. We're gonna turn it over to Stuart.
Good morning, Ike, and those listening. Our view on our activities related to the separation of the businesses, first, as outlined in our circulated script and as Andrew reminded us this morning, we took important steps to create or to facilitate standalone companies, Victoria's Secret and Bath and Body Works in the quarter. That was the organizational work that we did, taking many shared functions and creating or integrating those functions, I should say, into the respective businesses, Victoria's Secret and Bath and Body Works. We did retain Goldman and JPMorgan very recently, shortly after the end of the quarter, we'll begin work with them where they'll give the board and the company advice about the range of alternatives, and will assist us in a process as we move forward.
Obviously, it's important to get a read on holiday results, to value the business and to ensure that we strike the right balance, in terms of timing, execution risk, and getting an appropriate valuation for the business. What the company is most focused on right now is driving great results at retail. We got a lot of people in stores, distribution centers, home offices, vendor partners, all kinds of folks, organized to provide the best results at retail, and I couldn't be more proud of what this team has done over the last 90 days or so through the organizational work, reopening stores, maximizing volume on the digital channel. We're very focused on having the best holiday possible.
It'll be important as we go down this path, and it'll be important input as capital markets, advisors, potential buyers, again, the public markets assess the opportunity for Victoria's Secret. Very focused on having a good holiday, have hired some banks, and took a lot of important steps to create standalone companies. Thanks, Ike.
Thanks, Stuart. Thanks, Ike. Next question, please.
Our next question will come from Matthew Boss from JPMorgan. Your line is now open.
Great, thanks, and congrats on a nice quarter. On the expected moderation in trend for the back half of the year that you cited, have you actually seen a material deceleration in trend at either of your concepts to date? Coming out of the pandemic, curious your confidence in Bath & Body Works in being a stronger business model. Maybe if you can touch on customer acquisition trends more recently.
Okay, thanks, Matthew. We're going to start with Stuart and then go to Andrew.
With respect to very recent results, we have not at VS NewCo, Andrew will speak to Bath and Body, we at VS NewCo have not seen any change in trend, any deceleration of trend over the last several weeks. I realize other retailers have reported on that. We have not seen that in the VS NewCo result.
Hi, Matthew. Similar to what Stuart just described, Bath and Body Works had very strong and consistent results throughout Q2. As we got more and more stores open, through the end of the quarter, finishing with essentially, the majority of stores open and sitting here now today in mid-August, we actually have all but about 40 stores reopened. We've continued to see very strong results in both our direct channel and our stores channel. As we've moved into August, we've seen results continue to be very strong. In terms of your question around our future confidence in Bath and Body Works, I would say we have a lot of belief that our trend should be able to continue as a strong market leader in all of the categories in which we play.
As you can imagine, as we've discussed in the past, one of the most critical questions we always ask ourselves is are we in fact, in the right categories of business, and are those categories that are still relevant to our customers and growing in the marketplace? I think it's fair to say that in the case of Bath and Body Works, the answer to that question is a strong yes across our entire portfolio. Obviously, the soap and sanitizer business that historically has been 14% to 15% of the business is even more important to our customers and to all of the country right now in the midst of a pandemic. As expected, we've seen tremendous growth coming out of that category.
While that may moderate over time, we expect that awareness around the importance of that category, washing your hands, using sanitizers when you're not able to wash your hands, will continue even as the pandemic itself hopefully starts to wane away. In terms of our other categories, we obviously have a huge and an important body care business. That business has always been relevant to our customers, is even more relevant to her today as an affordable luxury, a way for her to treat herself even when she's unable or unwilling to spend money on perhaps other larger ticket commodities. That is an inexpensive way, whether for self-indulgence or to give as a gift.
Then similarly, our important home fragrance business that has grown substantially over the last half decade, also tremendously important to her, both now during the pandemic, when we're using our homes as a place of work, a place of teaching and school, and a place of refuge and solace. Certainly making your home smell like you want it to is something that our customer has continued to express interest in, and again, something we would expect to continue through the pandemic and also afterwards. Again, bottom line, categories that we're in, very, very relevant today, have been relevant in the past, and we absolutely believe are just as relevant go forward. Hope that helps.
Great. Thanks, Matthew. Next question, please.
Our next question will come from Simeon Siegel with BMO Capital Markets. Your line is open.
Thanks. Good morning, everyone, and congrats on the impressive results, even environment aside. Stuart, could you quantify merch margin versus occupancy deleverage within the 2Q gross margins? Just higher level, you believe it double digits despite top line declining 20 or so. How are you thinking about the opportunities to grow profits on smaller revenue base, any general color on where you see that longer term revenue size versus even margins? Thank you.
Yep. So Simeon, there was substantial rate expansion on merchandise margin. I'm speaking for LB in total. Substantial merchandise margin rate expansion in the Q2 versus last year, and there was some deleverage in total in Vietnam. One was very favorable. There was deleverage, and the two effects netted to an overall gross profit rate that was about flat to last year. Very significant expansion in merch margin and deleverage in Vietnam. Related to both the store channel and some in the direct channel as well, netting to about flat.
Sorry, Simeon, what was the second part of your question?
Any help on how you think about the revenue size versus EBIT margin and whether it'll be or either of the concepts? It was just very impressive to see that EBIT growth despite the revenues declining.
We took a lot of actions, obviously, to manage expenses, Simeon, and we took difficult decisions about expenses related to the store channel specifically. And then Separately, as it related to home office overheads and marketing spending, we clamped down pretty hard as you would expect us to in this environment. A big part of the result was the difficult decisions we had to make with respect to store operating costs, including store payroll. We're glad that we've been able to reopen the substantial majority of our stores as we move forward, and we'll continue to manage expenses with discipline.
What you saw in the quarter was very substantial actions that we took, and I think generally what the industry took, but we were quite focused on it and tried to make the right decisions for the business to ensure cash flow and reasonable profitability in the environment. That's how I'd characterize it.
Great. Thanks, guys. Best of luck for the year.
Thanks.
Thanks, Simeon. Next question, please.
Our next question will come from Lorraine Hutchinson from Bank of America. Your line is now open.
Thanks. Good morning. I wanted to follow up on some of the more cautious comments you made in the prepared remarks in two pieces, really. First, you talked about some capacity constraints. Can you just discuss any efforts that you're making ahead of time to try to enhance your capacity to get ready for these peak volumes? And then second, on the costs, obviously you'll see some incremental COVID costs in the back half, if there's any help you can give us on quantifying that. Thank you.
Thanks, Lorraine. Andrew?
Thanks, Lorraine. In terms of your question around capacity, again, there's capacity in both of our channels, in terms of our stores channel and our direct or online channel. On the online channel, we have obviously been experiencing holiday-like volumes really since the start of the pandemic. What that has meant is that we have substantially ramped up our fulfillment center capacity, even while needing to run those fulfillment centers in a way, as we mentioned earlier, very consistent with our overall focus on safety protocols. As you might expect, that puts some constraint on throughput and other productivity measures in those centers as we have to apply social distancing and other parameters in those centers. That said, we are very pleased with the ramp-up in capacity that we have already achieved, in both Bath & Body Works and Victoria's Secret.
As we move into the back half of the year, where volumes continue to grow, we are also on track to increase capacity even further across both networks. Feeling like we're in good shape there, but obviously, anytime there's a concern around an outbreak, that's something we have to monitor and take appropriate actions. And so again, we are cautiously optimistic that we have procured and are using capacity wisely. When you think about our stores channel, in some ways, it's a similar constraint in terms of the number of customers that we're able to actually allow into the stores at any point in time in order to, again, be focused on safety as our key priority, as well as then our ability to process customers through our cash registers and lines within the stores.
As we've reopened stores, we started off with, I'm speaking now for Bath and Body Works, a store opening pilot in late April that put a significant constraint on the number of customers we were allowing into the store early in that process, early on, keeping it at about 10% to 20% of max occupancy. As we moved through the Q2, we got comfortable with our protocols, again, around safety, social distancing, consistent sanitizing of all the surfaces and products within the store on a regular basis. That allowed us to get comfortable with raising that max occupancy up to about 30%. That's still going to be an issue as we move into the height of holiday in terms of how many customers do we feel comfortable metering into the store at any point in time.
Also, in terms of a different cash wrap layout, if you've spent time in our stores, either Victoria's Secret or Bath and Body Works, you'll see that in order to allow for social distancing by our associates, not all cash wraps have been, or not all cash registers on cash wraps have been able to be utilized. That has caused us to look at more mobile POS cash wraps in order to spread out customers and associates in the back of store to allow for that. Again, we're doing lots of additional testing here in the Q3 to simulate peak volume and understand how will that impact capacity and throughput. Those are really the reasons, Lorraine, for, again.
Cautious outlook as we move to volume levels in the Q4 that I know you know about our business are many times two to three to four times higher than what we would normally see in the Q2. In terms of incremental costs, as one would expect, putting in place safety parameters and personal protective equipment has certainly come with costs in our stores. We are happy that we have made those investments and happy that we were able to procure all those supplies in a very efficient way. That does come with additional costs.
We are also seeing costs associated with what it takes to then run stores in this new operating model in terms of the level of labor in order to keep customers and associates safe, in order to be able to guide customers through the store, in order to be doing the ongoing sanitation of the store and the product, as I mentioned earlier. That all comes with additional costs. And then in other parts of the supply chain, whether it's in our fulfillment centers that we are, again, from a safety standpoint, operating differently, including some cases, paying premium pay in order to procure enough labor, as well as as we look upstream in terms of our base of supply and in terms of our distribution and logistics network. We are seeing some inflationary pressure there on wages in order to procure enough labor.
So that's at a high level how I would describe both of those things. Stuart, I don't know if there's any other color you would add, either from a VS or total perspective.
No. As we've talked about together, Andrew, I think that covers it, and I just would put emphasis on, you said it, I'd just put emphasis on the store capacity dynamic in the critical holiday period. Andrew described the things that we're working on, and we are really working on them. Our priority is to keep associates safe and customers safe, which gets to metering of traffic and sorting out the balance on that capacity in that critical period is key. We talked about in our remarks that we'll be working to try to spread demand to other time periods to serve customers with providing them with the things they want and enjoy, and also to just pragmatically spread out the business to deal with some of those constraints.
Great. Thanks, guys, and thanks, Lorraine. Next question, please.
Our next question will come from Alexandra Walvis from Goldman Sachs. Your line is now open.
Good morning, everyone. Thanks so much for taking the question here. I wonder if you could update us on the planned timeline for the closures at Victoria's Secret. On a related topic, I think you mentioned in the press release that you're expecting to recapture around 30% to 40% of the sales at those closed stores. Can you talk a little bit about how you're getting to that number? Is that consistent with the types of recapture rates you've seen historically when you've closed stores? Are you planning for that recapture to mostly take place in other stores or online? Do you see the risk that online traffic could fall a little in those areas as you close stores? Any color on that would be really helpful.
Sure. Good morning. Thanks for the question. So the store closure activity for Victoria's has been largely complete, not fully complete, but largely complete. We remain comfortable with the estimate of about 250 stores closing this year in North America. The difference between largely and fully is we have some ongoing dialogue with landlords, property owners, developers on some of these situations. Not all 250 are fully resolved, again, we remain comfortable with the estimate. An important decision for the business as you appreciate. With respect to sales transfer, as you would also intuit or understand, there is a range of outcomes. We remain comfortable with the 30% to 40%. A portion of that, the minority portion, call it 5%, I'm generalizing, is going to the digital business, the balance going to nearby stores. As you would understand, the specifics vary by trade area.
A lot of this gets down to shopping patterns, traffic flows, et cetera, in trade areas. It's how we look at it. Lastly, Alex, you asked if the roundly 30% to 40% is generally consistent with our past history, and the short answer to that question is yes. And so we've done more testing on this a year ago. As we got somewhat more aggressive with closures last year, we learned more. We had experience prior to that. Again, what we're seeing is that 30% to 40% range. Again, expecting that activity to be EBITDA and profit neutral as we move through and we think a healthy thing for the business. We all know what's going on in retailing generally and for the VS NewCo business, we believe this is an important step, a good step, for the long-term health and profitability of the business.
That's where we're at.
Thanks, Alexandra. Next question, please.
Our next question will come from Jamie Merriman from Bernstein. Your line is now open.
Thanks very much. As you think about ramping up capacity for e-commerce, for Bath and Body Works into holiday, how do you think about leveraging costs there? Does that put any limits on it? And as e-commerce grows as a percentage of sales for BBW, do you see any investments on the horizon in terms of the digital platform or capabilities that you need there? Thanks.
Thanks, Jamie. Andrew?
Hi. Good morning, Jamie. Thanks for the question. So on your first question, in terms of the capacity ramp up, obviously we are making any and all investments required in order to procure that capacity. That means working with more fulfillment centers than what we had at this time last year or even at the peak of holiday. We're already operating with more centers this year than last year by about two x, and that magnitude will continue as we move through the rest of the year. In terms of the other investments being made into those centers, obviously I described many of the investments associated with safety and making sure that we have adequate protocols, PPE equipment, as well as labor in those stores. Those are really the investments that we'll be making from a capacity standpoint.
From your question around the percent of sale for Bath and Body Works direct and other capabilities that we're looking to add to the direct business over time, I think it's important to just reground ourselves on where has Bath and Body Works online historically been as a % of the total business. It finished 2019 at just under 20% of total revenue for the Bath & Body Works segment, but had been growing rapidly over the past several years. Over the prior five years, compounded average growth rate in the high 20s and the prior two years, 2019 and 2018, growing at about 30% per year. Already a large and fast-growing portion of the business.
That said, as you would've seen in our materials released last night for the spring season to date, this first six months of the year, Bath and Body Works direct was about 42% of revenue, obviously peaking in the timeframe that stores were closed. Even as the majority of stores have reopened, here through July and into August, the direct business as a percent of sales has continued in the high 20s to 30% range, and that's frankly how we're modeling the business go forward. In terms of capability, you would've noticed that we have added the capability of buy online, pickup in store. That is not something that the business had as a capability prior to Q2 of 2020. We have added that into, at this point, a little over 60 of our locations. 45 of those locations are specifically buy online, pickup in store, curbside only.
That was a model that we were fortunate to have available to us in California when some stores that had reopened were forced to close as a result of governmental and jurisdiction requirements in that state. We have been able to continue to operate those stores and are pleased with the results we're seeing. Obviously, stores do more volume when they're fully open as opposed to curbside only, but it is a model that has allowed us to continue to serve our customers and associates safely in those environments. We do also have about a dozen locations where we have buy online, pickup in store, in addition to being fully open, and we are pleased with those results as well, and we're intrigued with how to roll that out more broadly as we move through the rest of the year.
Again, as Stuart mentioned earlier, we do need to smooth volume out from our peaks, in terms of peak days and peak timeframes. Certainly, the buy online, pickup in store option that allows the customer to lock in her sale but then come and pick it up several days later is a key part of the strategy to do that as we move into the back half. In terms of other capabilities, you've heard us talk about our loyalty pilot over the last couple of years. With the onset of the pandemic, we have not rolled that more broadly, but we continue to be intrigued and pleased with the results we're seeing there and do believe that we'll take that out more broadly as we move into fiscal 2020, 2021.
And we're also looking at other, what I'll call omni-channel capabilities, to again, more closely integrate our direct channel with our stores channel. Certainly, all of the tremendous surge in business online has had us accelerate some of the projects that were on maybe back burner or further out, to be faster, and we're intrigued by some of those opportunities as we move into next year. Nothing additional I would highlight, though, for balance of this year.
Great.
Hopefully that was helpful.
Really helpful. Thanks.
Thanks, Jamie. Next question, please.
Our next question will come from Matthew Boss from KeyBanc. Your line is now open.
Hi, all. Thanks for taking our questions. With inventory receipts being down 50% at VS and digital doing well.
Can you talk about how you're planning the balance of inventory between stores and digital? I guess asked a different way, how lean can you keep stores relative to what stores were in the recent past and keep the full VS experience for shoppers?
Why don't I take a crack at that? It sounds like your curiosity is mostly on the Victoria's Secret side of Stuart. As you know over the last several years, the inventory levels at Victoria's and the need to promote based on consumer response to what we were doing not being as strong as we would have hoped has been high, meaning we've been somewhat overbought over the last two or three years. I'm speaking generally. It's varied some by line of business and by category. With that said, the pandemic actually creates a real opportunity for us in the positive sense to make substantial change in the profile of inventory purchases, which we've outlined.
That in combination with what we do believe is being closer to the customer and delivering better fashion and newness, better merchandising fundamentals around good, better, best basics with Greg, Amy, and John's leadership in those areas as the key merchant leaders in the business. The combination of those things gives us real reason to believe, along with some focus on getting the cost balance in line, that we've got a real opportunity to deliver good experiences to customers and substantially improve the profitability, the merchandise margin rates in the business. Obviously, being appropriately in stock for the customer in core categories and key sizes is a fundamental and something that needs to be, and we will remain very focused on delivering a good experience for her. We understand the importance of that. We're managing that well.
But really the need to fundamentally become much more conservative on the inventory buy or the purchases, again, triggered by the pandemic, has a silver lining to it in that it provided a real clarity to the organization about buying much more conservatively and then chasing into business when the trend was in fact there. That's where we are. We understand that being in stock is important, but in terms of overall turn in the business, importantly, in certain categories, we were turning reasonably well or at a level that we were very comfortable with. In other categories, we had meaningful opportunity to improve the turn in the business. Again, the combination of everything I've just described, I think is going to get us to a much healthier balance between inventory levels and purchases and the underlying demand. That's where we're at on it. Thanks.
Great. Thanks.
Sure.
Next question, please.
Our next question will come from Roxanne Meyer from MKM Partners. Your line is now open.
Great. Thanks for taking my question. My question is on Bath and Body Works. I'm just wondering if you can talk about how you're planning inventory for the holiday, what your ability to chase into trends looks like, and also your approach to the gifting strategy at Bath and Body Works, whether you're going more after packaged gifts or make your own or anything big that we should think about in terms of strategic changes there. Thanks a lot.
Thanks, Roxanne. As you can imagine, we are absolutely going to be relying very heavily on the agility and flexibility that our supply chain for Bath and Body Works allows us as we move into the back half of the year, again because we don't know. It's a very wide range of outcomes that are possible. We want to be able to absolutely chase to the upside if we're able to continue a trend more like what we've seen year to date. Also use our agility as we have historically to also cut back if in fact things don't materialize to the level that we would expect them to. As a reminder, the Bath and Body Works supply chain is almost fully a domestic supply chain. A lot of it is actually produced right here in central Ohio.
That gives us, again, tremendous flexibility and agility and allows us to, as you mentioned, really chase into trends. In our vernacular maximize winners and minimize losers or things that end up performing worse than our expectations. The ability to do that has been a critical part of our historical success, and we're absolutely relying on it already through the H1 of the year because we were surprised to the upside in the Q2. Bath and Body Works had originally cut back pretty substantially on receipts at the beginning of the quarter, but we were able to successfully chase back into receipts through the quarter in order to meet our demand that exceeded our expectations, and we would expect to be able to use that same flexibility and agility in the back half.
In terms of your question around gifting strategy and specific assembled gift sets versus more open stock gifting, again, I think it's important to remind everyone that Bath & Body Works is absolutely a gifting destination for customers year-round at any point in time. At the height of holiday probably 50% to 60% of customers claim to be coming in for gifts. Even the rest of the year, that number is in the 30% to 40% range. Year-round gifting is something that we focus on for sure at Bath and Body Works, and we see that as a successful driver of the business.
As we move into this particular Christmas, I would say, based on several years of testing results around the pros and cons of having assembled gift sets, we certainly have moved over the last two years to having fewer, smaller portion of our business in those assembled gift sets, and later, meaning closer to Christmas as opposed to earlier in the holiday season, is when that business really peaks. We'll continue to rely on those learnings to impact our flow of assembled gifts in terms of amounts and timing. But again, what that does have us focus on then is ensuring that the whole assortment that's available for customers inside of the holiday timeframe is giftable and making that as easy as possible for her with things like cellophane wrap available for all customers, ribbons to create gifts.
Our associates are happy to create those gifts for you in store as well as provide you with supplies to do that from home. Gifting in general, as much if not more of a focus this year than it's ever been. Hope that's helpful.
Great. Thanks, Roxanne. Next question, please.
Our next question will come from Susan Anderson from B. Riley FBR. Your line is now open.
Hi, good morning. Nice job managing the quarter. First, one clarification just on the performance you talked about quarter to date. Is that from July or from the total performance you saw in the quarter? As it relates to VS, it seems like there's some stabilization going on there, though a little bit muddled given the pandemic. Can you maybe talk about the drivers of the performance, what's working now versus historically, the 250 stores you'll close this year, are there any thoughts around how this is going to impact profitability and the retention rate of sales you expect either online or at other stores? Thanks.
Thanks, Susan. We'll start with Stuart.
In terms of is Victoria's Secret stabilizing, I think in many respects it is. Earlier in this call, we talked about the benefits of a more conservative posture on inventory purchase levels, how aggressive we're buying, and how that has an effect on promotional activity. That's been an important change. It's starting to bear some fruit. I talked about the work that Greg, Amy, and John are doing in Beauty, PINK, Victoria's lingerie, and the fundamentals that they're pursuing in terms of merchandising fundamentals, easy things to say, but hard to do, really gaining some traction and seeing across all major categories, healthy average unit retail growth and meaningful margin rate improvements, which is certainly indication of a better, stronger response from consumers with respect to what we're selling. We are implementing a profit improvement plan that we've talked about.
A lot of that benefit relates to the Victoria's Secret NewCo business. With all that said, we got a lot of work in front of us. The businesses results have declined substantially over the last few years. We're not in any way out of touch with reality about where we are. With that said, and in the spirit of your question, I sense a real stabilization and with the combination of actions that we're pursuing and that we've talked about, I see the opportunity for that stabilization and then for resuming to a pattern of growth, most importantly at retail in terms of top line and margin dollars, again, in combination with the cost rationalization actions that we've pursued. Maybe lastly, and a lot into in my response, but all these factors matter. Amie's done important work on the PINK brand positioning.
John is doing important work on the Victoria's brand positioning. Some of the changes one might argue have been subtle so far, but we have indication that the consumer is noticing those changes, and those are important changes, and there's more to come on both those things. We got a lot in front of us. Again, we're not confused about where we are. You put that in combination in operating in an environment that's a pandemic with the effect of closing stores and the earlier conversations around store capacity and so on at holiday. Feeling like the business is stabilizing and that we're creating the platform for growth. That'd be my perspective on Victoria's. Thanks.
Susan, we did say that the closure of the 250 stores we expect to be neutral to profitability. I'm not sure we understood your question about quarter to date versus July or I wasn't sure what you meant by that.
Yeah. Just in terms of, it doesn't sound like you've seen any weakness from back to school or anything, like the trends have continued, I guess, I was wondering if that was from July, just given, I think there was maybe some variances from the beginning of the quarter to the end of the Q2?
Yeah, no, we had consistent business throughout the quarter, and that has continued so far into August.
Great, thanks.
Okay, thanks. Next question, please.
Our next question will come from Omar Saad from Evercore ISI. Your line is now open.
Good morning. Thanks for taking my question. A quick follow-up on BBW, the +87 store comp or open store comp. Obviously, we assume that slowed as more and more stores open. I think 98% of the stores are open now. Is there a way you can kind of put some guardrails on how we should think about how the stores are operating, kind of on an ongoing basis? Then Stuart, would you mind kind of addressing quickly as you do more BOPUS and curbside, the margin differential in those types of transactions versus pure traditional e-commerce? Thank you.
Thanks, Omar. We'll go to Andrew, actually, for both those questions.
Yeah. Thank you, Omar. In our prepared remarks last night, we talked a little bit about what were the factors that we thought certainly helped benefit the strong positive comps that we did see as stores opened. Again, to reiterate what those were, obviously, when you have a very small number of stores open, in the early part of the quarter, as a reminder, for Bath & Body Works, started the quarter with only 23 stores reopened in North America. We gradually increased that number by about 50 a week through May, about 200 a week through June, then down to about 100 a week through July to get to that essentially fully reopened as we sit here now in mid-August.
But as you would expect, when very few stores were reopened and only a couple of stores in each market early in the quarter, we obviously saw tremendously high comps out of those locations as they were drawing from a multiple store trade radius. In our categories too, which is a use-up category, where if you're loyal to our products, whether again, that's soap or body care or home fragrance, you tend to, if you're using it every day, go through it in about four to eight weeks, depending on the product category, which means as stores were closed, there was clearly some pent-up demand. While some customers did move their purchasing online, many customers waited for our stores to reopen, and so we certainly felt some of that impact as we reopened.
Also, as mentioned, obviously industry-wide, there's a tremendous demand for soap and sanitizers, and so we certainly felt the benefit of being a strong player in that category. All of that said, even as stores were opened for a longer period of time, so specifically stores that opened late in Q1 or early in Q2, by the end of the Q2, we were still seeing very strong double-digit comps out of those locations. Again, that's what we're looking at, and again, building our upside views to assume that what would it take to maintain that kind of a trend while also managing to downsides, again, either based on capacity or if there were to be a change in momentum in the business.
On your question regarding BOPUS, or buy online, pick up in store, I think it's important to clarify that the capability that I described earlier was specific to Bath and Body Works. That's the only locations right now where we are utilizing that buy online, pick up in store capability. In terms of your question around what do the profile of those transactions look like relative to, quote, "a normal transaction," again, when you're buying online, you're doing so through the website, and then directing the purchase ultimately to be fulfilled in one of our stores. But the profile of those transactions look very similar to our other online transactions. Our online transactions tend to have a higher slightly average order size than our in-store transactions.
But in terms of margin or category mix, very similar to a, quote, "normal or average transaction." Not something that we would think go forward drives a material change.
Great.
If that's helpful.
Thanks, Andrew.
Thank you.
Thanks, Omar. Next question, please.
Our next question will come from Kimberly Greenberger from Morgan Stanley. Your line is now open.
Great. Thank you so much. Good morning. Andrew, I wanted to ask about the store capacity that you're talking about at Bath and Body Works. I think you indicated that as a result of social distancing, that you had capped your capacity at 30% of max right now in Bath and Body Works stores. Does that continue into the Q3? What percentage of revenue, so we understand the foot traffic is at 30% of max capacity, but what percentage of last year's revenue can that low level of traffic capacity deliver in your stores. I would assume that it's materially better than that. I just wanted to see if you could help us understand how the traffic capacity limits translate into store-only revenues at this level.
Thanks, Kimberly. So that's obviously a lot of complexity associated with that answer or with that question. I'll try to directionally answer, hopefully in a way that's helpful. Again, when we're speaking in terms of metering traffic or number of customers in the store, the % capacity that we're talking about there is generally a capacity that's given by local authorities around what would the fire marshal, for example, say is a safe number of people to have in the store at any point in time. We've pegged that 30% directionally number due to really looking at what does that allow for in terms of social distancing of associates and customers throughout the store. So obviously in many days of the week and many times of the year, that's not a problem at all.
Meaning that even at a 30% capacity, that doesn't create a line outside the store at all. At other times of year, in the peak of holiday, that's obviously what we're looking at and trying to figure out. So in terms of that number itself, we certainly will be continuing to test and monitor that. Again, the priority is safety, so we're not going to make any changes to that if we think that requires us to compromise on safety and social distancing. Certainly, we are continuing to monitor to see if that number is right. The other part of your question was around modeling. What does that allow us to do in terms of covering last year's revenue?
So obviously, in the Q2, even with those parameters in place, and even more stringent parameters in place earlier in the quarter, you saw that obviously there was no constraint in terms of our ability to maximize revenue in the stores. Traffic into our locations in the Q2 was down. It was down in the high single-digit range. There was some differentiation of that traffic between mall stores and non-mall stores. It was down more in mall stores. It was actually up in non-mall stores, driving a performance differentiation between those locations. The other parts of the selling equation were up dramatically. Conversion up in the 30% range and average dollar sale up in the 40% to 50% range. Way more than an offset, obviously, to that traffic decline.
We will be relying on those metrics to continue to drive performance as we move into the back half. The combination of those things obviously means that the dollar generated by every footstep into our store is up dramatically, up basically double to last year, if that's helpful.
Great. Thanks, Andrew.
Maybe, Kimberly, just to add on a little bit or to further emphasize. You're trying to envision, we are, how many people can you fit in the store safely, right? And if we think about in Bath and Body's case, base case run rate 40% to 50% conversion rates, right, generally. At Victoria's, let's say 30% conversion rates. How do you think about lookers versus buyers, right? What do you see in terms of conversion rates and dollars per footstep? That's a key part of what we're trying to sort out, what Andrew was describing. What we've seen so far is a substantial increase in dollars per footstep, right? It's a complex thing. You're trying to sort out physical capacity in your question, I think. Then there's another aspect of what's the nature of that visitor to your store, right?
What is she doing and how many people are with her, and what's her intent to buy, right? It's complicated beyond just how many people can fit in the store.
Great. Thank you for that color.
Thanks, Kimberly. We're running a little short on time here. We have lots of people left in the queue, let's try to ask only one question, and we'll see how many we can get in here. Next question, please.
Our next question will come from Jay Sole from UBS. Your line is now open.
Great. Thank you so much. My question is about Bath and Body Works International and the partner-owned stores. How are you thinking about the growth potential in that business from the roughly 285 stores or some odd this year? What countries do you see it from? Is there anything about the separation which will cause a change in that business's growth potential and how you're managing it?
Thanks, Jay.
Thanks, Jay. Yeah, as we've talked about some prior calls, the BBW franchised stores around the world outside of North America is a very nice business model, very successful and profitable business model that has seen nice growth over the last several years. Obviously, the pandemic had an impact on that business, just like it had an impact on all of our businesses.
But similar to the U.S., the rest of world franchise partners are now largely reopened, in terms of locations around the world, and also were able to very successfully shift business to online in all of their markets as well. When we think about from a future potential opportunity, again, that franchise model, which is a low capital light investment with a lot of potential upside, is something that we absolutely do believe over the next several years, we will want to expand further into additional geographies because, again, we have seen it perform well essentially everywhere we've gone. In terms of specifics around that, again, in the midst of still figuring out 2020 and operating safely, we're not going to speculate on what that will be go forward. Certainly, an important profitable business and one that we do see with growth potential go forward.
Thanks, Andrew.
Thank you so much.
Thanks, Jay. Let's try to get two more in here. Next question, please.
Our next question will come from William Reuter from Bank of America. Your line is now open.
Good morning. Thanks for squeezing me in. My question is just on the marketing savings, how much you achieved during this quarter, and then will you continue to keep your marketing expenditures at lower levels in Q3 and Q4? Since stores are open, are you going to increase them to historical levels? That's it. Thanks.
Thanks, William. We'll go to Stuart.
William, short answer is they'll return back to more typical levels. We pulled back on a lot of stuff, as you could understand, but they'll return to more normal levels as we move into the holiday period.
Great. Thank you.
You're welcome.
Thanks, William. One final question.
Our last question will come from Paul Lejuez from Citi. Your line is now open.
Hey, thanks, guys. I'm sorry if I missed this, but can you talk about how the soap sanitizer business performed during the Q2 and also what %, if you look at it this way, what % of transactions included a soap sanitizer item compared to the Q1 and maybe versus the same quarter a year ago? Thanks.
Hi, Paul. It's Andrew. I did mention earlier that we obviously saw very strong performance out of our soap and sanitizer category. Directionally, that business last year, on an annual basis, was 14% of the business. In the H1 of the year last year, it was in that same 14% to 15% of the business range. This year in Q1, it was about 25% of the business, and in Q2, a little higher than that. In terms of percent of transactions, I don't think that's something we historically have talked about, but safe to say that customer engagement into that category has been very high. As it's grown as a percent of sales, it's seen a comparable growth in terms of customership into that category. Certainly, a business that we remain very bullish on into the future.
Thank you.
Okay. All right. That concludes our call today, and thank you for your continuing interest in L Brands.
This concludes today's conference. All participants may disconnect at this time. Thank you for your participation on today's call.