At this time, I will turn the call over to Ms. Amie Preston, Chief Investor Relations Officer for Limited Brands. Please go ahead.Amie Preston Thanks, Tracy. Good morning, everyone, and welcome to Limited Brands second quarter earnings call for the period ended Saturday, July 28, 2012. 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 statement found in our SEC filings. Our second quarter earnings release and related financial information, including any non-GAAP or adjusted financial reconciliation tables, are available on our website, limitedbrands.com. Also available on our website is an investor presentation, which we will be referring to during this call. This call is being taped and can be replayed by dialing 1 (866) NEWS-LTD. You can also listen to an audio replay from our website. Stuart Burgdoerfer, EVP and CFO; Sharen Turney, CEO, Victoria's Secret; Nick Coe, CEO, Bath & Body Works; and Martin Waters, President of International, are all joining us today. After our prepared comments, we will be available to take your questions for as long as time permits. [Operator Instructions] Also, just a reminder that all of the results discussed on this call are adjusted results and exclude the onetime items that are described in our press release. Thanks, and now I'll turn the call over to Stuart. Stuart B. Burgdoerfer Thanks, Amie, and good morning, everyone. We reported adjusted second quarter earnings per share of $0.50 against last year's $0.48 per share or $0.46 per share excluding the earnings related to the sold third-party sourcing business. This year's result was negatively impacted by about $0.04 related to La Senza transition costs, investments in Victoria's Secret U.K. and the timing shift of a Victoria's Secret marketing campaign. Operating income in our 2 core businesses, Victoria's Secret and Bath & Body Works, increased 12%.
To take you through the second quarter results, as detailed on Page 4 of the presentation. Comps increased 8% against 9% last year. Adjusting for the impact of the sourcing business sale, the gross margin rate decreased by about 30 basis points as leverage in buying and occupancy costs did not fully offset the decline in the merchandise margin rate. The SG&A expense rate was about flat.Turning to the balance sheet on Page 8. Retail inventories per square foot at cost ended the quarter up 3% versus last year. Our inventories are clean and well positioned as we head into fall. We continue to be committed to returning free cash flow to shareholders. We repurchased 5.1 million shares of stock in the second quarter for $202.9 million. At quarter end, we had 60.5 million remaining under our current $500 million repurchase program. Additionally, as previously announced, we will pay a special dividend of $1 per share, along with our regular quarterly dividend of $0.25 per share on September 7 to shareholders of record on August 23. Turning to Page 11 of the presentation for our forecast for 2012. We expect earnings per share between $0.15 and $0.20 in the third quarter against last year's adjusted $0.25 result or $0.22 excluding the result of the sold third-party apparel sourcing business. While we expect operating income growth in our 2 core businesses, we will continue to see an impact from our international business as we work to turn around La Senza and continue to invest to support future growth. We will also have a negative impact of about $0.02 from incremental interest expense in the quarter. Our third quarter earnings forecast reflects a low- to mid-single digit comp increase. We expect the third quarter gross margin rate to be up significantly as the sale of the sourcing business will benefit our gross margin rate by approximately 400 basis points. Absent this impact, we expect the gross margin rate to be down, driven by a decline in the merchandise margin rate. The merchandise margin rate decline is primarily driven by a mix shift within the business as a result of an increase in massed sales to our international partners. We expect the merchandise margin rates at Victoria's Secret and Bath & Body Works to be about flat. Read the rest of this transcript for free on seekingalpha.com