Good morning, ladies and gentlemen and welcome to Gap Inc.'s fourth quarter 2007 conference call. (Operator Instructions) The conference call and webcast are being simultaneously recorded on behalf of Gap Inc. and consist of copyrighted material. They may not be rerecorded, re-produced, retransmitted, rebroadcast, or downloaded without Gap Inc.'s expressed written permission. Your participation represents your consent to these terms and conditions which are governed under California law. Your participation on the call also constitutes your consent to having any comments or statements you make may appear on any transcript or broadcast of this call. If you have any questions regarding this policy please contact Gap Inc. Investor Relations at 415-427-2175. I would now like to turn the conference over to our host, Evan Price, Vice President of Investor Relations.

Good afternoon, everyone. I would like to welcome you to Gap Inc.'s fourth quarter 2007 Earnings Call. For those of you participating in the webcast, please turn to slides two and three. I would like to remind you that the information made available on this webcast and conference call contains forward-looking statements including those identified in today's earnings press release which is available on gapinc.com, as well as other statements that express our expectations, anticipations, beliefs, estimates, intentions, plans and forecast. Because these forward-looking statements involve risks and uncertainties, there are important factors that could cause our actual results to differ materially from those in the forward-looking statements. Information regarding factors that could cause results to differ can be found in our annual report on Form 10-K for the fiscal year ended February 3, 2007. Investors should also consult our quarterly report on Form 10-Q for the quarter ended November 3, 2007, and today's press release, which is available on gapinc.com. Future economic and industry trends that could potentially impact net sales and profitability are difficult to predict. These forward-looking statements are based on information as of February 28, 2008, and we assume no obligation to publicly update or revise our forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized. This presentation includes non-generally accepted accounting principle measures, non-GAAP operating expenses, free cash flow and diluted earnings per share excluding Forth & Towne's net loss and expenses associated with the company's cost reduction initiatives, which under SEC Regulation G we are required to reconcile with GAAP. The reconciliation of these measures to GAAP financial measures are included in today's earnings press release which is available on gapinc.com. Joining us on the call today are Chairman and CEO, Glenn Murphy; and Executive Vice President and CFO, Sabrina Simmons. Now I would like to turn the call over to Glenn.

Thank you, Evan and good afternoon. Before handing the call over to Sabrina, I thought I'll take a few minutes and touch on what I think our three important topics. First off is my perspective of the importance of the year we just finished 2007. Secondly, my overall view of this coming year and the volatile economic environment we are facing. And last I just thought I'll spend a few minutes and identify what we believe are some of the company wide priorities that all of us are going to be working on in 2008. 2007 was an important year for all of us here at Gap. We restructured our business and went to more of a brand centric structure, which is going to serve us well in the long-term. We became serious about managing inventory to traffic trends and driving better margins. We refined our target customer and strengthened our product teams. And we really began the work of simplifying what, unfortunately, has become a very complicated and bureaucratic culture. As we look towards 2008, we are quite aware of the plight of our customers. The combination of the housing market, fuel prices, and threat of inflation has really put some downward pressure on consumer confidence. At a high level, what we've decided to do just to keep it simple. On a very high level, we decided to focus on fewer high return priorities, to take on and execute more operationally improved initiatives, so it’s a chance to really get everyone in the business to focus on what's operationally important to us going forward. And let's make that the core of our initiatives in 2008. Increase the level of accountability, not to say that people in our company didn't feel accountable in the past; but really define what accountability…

Great. Thank you, Glenn. Good afternoon everyone. As we've discussed on previous earnings call, our strategy is to pursue improved performance in a way that supports the long-term health of our brands. This means we are focused on delivering our earnings through more regular price selling and healthy markdown margins. And we're pleased we made progress in 2007. I'll begin today by reviewing our fourth quarter and full year results and then provide an overview of our outlook for 2008. First, fourth quarter results. Net earnings were $265 million or $0.35 per share. Gross margin increased 220 basis points to 34.8%, and we completed our $1.5 billion share repurchase authorization, buying about 30 million shares in the fourth quarter. When looking at the full year, we generated $1.4 billion in free cash flow, and total cash distributed to shareholders in the form of share repurchases and dividend payments was nearly $2 billion. The webcast participants please turn to slide four. As I just stated fourth quarter earnings were $265 million, the fourth quarter effective tax rate was 38.8%, and the full year effective tax rate was 38.3%. Full year earnings on a GAAP basis were $833 million or $1.05 per share, versus $0.93 last year. Excluding about $0.07 per share of share expenses related to the discontinued operation of Forth & Towne in our cost reduction initiative, earnings per share for 2000 were $1.12. Please see today's press release for Reg G reconciliation. Fourth quarter weighted average diluted shares were 749 million, and full year weighted average diluted were 794 million. Turning to slide five, sales performance. Fourth quarter total sales were $4.7 billion, down 5% versus last year. Please note that the fourth quarter of last year had 14 weeks compared to 13 weeks this year. Total company's comp…

That concludes our prepared remarks. We will now open up the call to questions. We'd appreciate limiting your questions to one per person.

Thank you, and good afternoon. I was hoping for a point of clarification regarding the expense control initiative. Sabrina you showed us that slide eight has the $132 million in savings in '06. Can you contrast that to the $100 million target that you gave us for annual savings from the initiatives you put in place in '07? How much of that was achieved in '07, and what are the biggest areas of opportunity as you go into '08 to build the condos? Thanks very much.

Sure. So, Lauren, what we talked about is about halfway through the year, you will recall on our Q2 earnings call, we really talked quite a bit about this fact that we had executed most of our cost initiatives work in Q2. So, what we talked about is that we have reduced headcount by about 2200 people, and based on the non-vacant headcount that we have reduced, that equated to about $100 million on an annualized basis for payroll. So, we had about half of year's worth of that in 2007. As I mentioned on the Q3 earnings call, I am against that reduction of headcount in any one quarter at any time, and certainly as you enter a new year, you had some offsetting factors that are putting pressure, upward pressure on SG&A. So, as an example, in the fourth quarter, although we are indeed seeing the savings from payroll that we called out, offsetting that are some other pressures in the fourth quarter, as an example, increased bonuses, given our increased earnings.

And as you look at the backdrop they are currently facing, are there any new initiatives or new projects to save additional expenses that are embedded in your current guidance that you would be contemplating? Thanks very much.

Sure. So I don't think you should expect any big announcements like you heard in Q2 of 2007, but what we are embracing is just a culture of cost management. And so, we're going to be looking at every single line item, including line items that don't fall under SG&A like Glenn talked about, our biggest opportunity being an average unit costing. But there really are going to be no sacred cows and we're going to work every single line item. Now I will give you an example of what we're doing, and Glenn mentioned it, we're implementing a new labor management system in North America that should be in all our divisions by the end of Q3, and we hope that will really drive some additional productivity in our sore payroll.

Thanks very much and good luck.

Thanks.

Next question is from Barbara Wyckoff, Buckingham Research.

Hi, everybody. Good quarter. Could you talk about the marketing plans for next year vis-à-vis expense, and I guess that's it?

Yeah. So Barbara, let me first start by saying that our second half plans are still in motion. So we are still working through that, and part of what's going to inform our second half plans is read on the effectiveness of our plans from the '07 Holiday Marketing Campaign, and we are still analyzing and working through that. So there is a lot of opportunity to affect the second half in the first quarter, and which, of course, we are in really or may be, and Banana Republic has marketing plans that, in scope, are similar to the prior year. It feels different at all, maybe, because we are marketing our television lights, lining up in the integrated marketing plan. They are lining up with our monthly flows, and they change in terms of flavor each month with those flows. So it looks and feels different, but the overall campaigns are about the same duration, etcetera. With regard to GAP brand, different areas last spring we had a television campaign, which were not anniversarying this year. But of course, we are still investing and marketing a GAP brand. We have some really nice campaigns that are building buzz in a different way. So, as an example, we have the Pierre Hardy sandals coming out in the month of March. We have the CSDA short campaign coming out in April. So there will be marketing going on, but it won't take the form of television GAP brand.

I think also as we mentioned earlier, we are very aware of the environment in which we are operating in 2008. But not all of our marketing money has been revisited, but portion has been looked at to make sure it's been used appropriately, given the fact that the consumer sentiment is where it is, not particularly implies at Old Navy.

Okay. Thank you.

Next question is from the line of Kimberly Greenberger with Citigroup.

Thank you. Good evening. Glenn, you mentioned something about a payroll or an opportunity to manage payroll a little bit more carefully. Is this a system that you are looking to put in? If you can just expand on that a little bit more and give us might be around the timing stamp. That would be great.

Definitely, and I guess it’s two fold. I think that even in the absence of any kind of technology support, we would be looking, as part of a complete overview of our cost inside of our business, exactly how we show up structurally and what is the right customer service model per store. My observation would be, again, in advance of any system coming, and although we are going to implement one as we have taken a fairly vanilla generic approach to managing labor across our brands by store, by week, by hour and we have been making some minor changes on that front. The system, which is going to be starting to roll out in March and will get to every brand by the end of the year, may not get to every store, but definitely get within every brand by the end of the year, is a tool that we desperately need. Our current computer scheduling system is, to be kind, I would say it's dated. So this new system, which we know are heads of the brands that are heads of field operations. And I've actually spent some time on it having some experience having put this into a previous business, should definitely give our stores a tool they've never had before and we'll give our office, which is unfortunate but true, we'll give our office a visibility to labor inside the store, which we currently do not have. So I think it's going to be a win-win and I think with it we can certainly become more productive make sure the right labor in the right store on the right day.

That sounds great. Glenn, is there an opportunity to tie in the traffic counters that you have at your stores to that labor scheduling system, to sort of match traffic patterns and labor hours?

I think on a daily basis it’s really not something you can use effectively, because our commitment of a shift is a commitment of a shift, but what it will give us which we don't have today is an historical view over a 24 month period of how our stores traded particularly when it comes to holiday weeks. You can imagine how useful a system is like this, when it comes to November and December. So, it's unfortunate but our stores have information like that, it’s manual in some cases, but this will suggest the schedule. You still need a person who understands the business and understands the quality of their employees part-time and full-time to make the decisions. But the amount of labor we put into creating schedules and trying to do the right thing, our stores, I would not say they are operating blind, but they don't have the information they need to make good sound judgment decisions.

Great, thanks. Good luck in '08.

Thank you.

Next question is from Paul Lejuez with Credit Suisse.

Thanks guys. With the opportunity that you mentioned in driving average unit costs down, I guess just a couple questions on sourcing. What's happening to your vendor base? Are you becoming more concentrated in rationalizing that base, working more strategically with certain vendors to achieve a lower average unit cost? And then just more broadly speaking, are you seeing general pressure out there in your sourcing base?

Paul, the answer to your second question first. There is defiantly pressure there. We know there is headwinds in terms of inflationary pressures, particularly in our biggest market in China. The reason we articulated today that we are confident on it, all comes down to where your cost base is starting at. And our observation is that, regardless of the headwinds that exist on inflation pressures in China, that the cost base we're currently at is not as low as it should be for a company of our size. So, that gives us the confidence even with these headwinds, that we can have more strategic relationships, yes. I think it’s just personally having been around this for two decades. People flowed out the word strategic partnership easily and it just kind of rolls off people's tongues. I think it's really incumbent on us to make sure we understand, from a relationship point of view, from a sharing of information, from holding vendors accountable on a number of fronts which is; quality, flexibility, on-time delivery, and yes, making sure we get the cause, given our size. It’s an opportunity for this business and we had some historical stops on this front likely. I spent a lot of time assessing it, I travel to our hubs in South Korea, in Hong Kong and Singapore. I am off to Turkey and India next month and everything I've looked at and the people I've met with. Our conclusion is, even though there are some headwinds out there, that we have an opportunity to lower our cost base.

Any sense of timing, Glenn, on when that might occur, and at what level?

Well the level is tough to articulate right now, but we believe in 2008 we will get some of the benefit of work we're doing.

Thanks good luck.

Next question is from Janet Kloppenburg with JJK Research.

Good afternoon. Glenn, I was wondering if you could talk a little bit about the transition going on at Old Navy. What we might expect to see there in terms of positioning of the brand and in terms of spending let's say on marketing in the brand until Tom and his team have the strategies in place? And whether or not you expect -- well, maybe you could give us a perspective on back-to-school, if it was planned by the old leadership team, or if there is some opportunity for that period to improve for the brand? Thank you.

No problem, Janet. I would say that the way we look at Old Navy, the first thing we're spending some time on is on our target customer. And if you want to look at it three ways, you can look at Old Navy's target customer. You have fashion on the one side, there is a fashion component, and there is a family component. The most important part of the three dimensional approach to Old Navy is the value component. So those three at times, we recently gone to market and maybe pursued a strategy that was more devoted to one of those dimensions than the other. I would say the answer is yes. So we believe going forward we have to make sure we spread out our messaging, our marketing to our customers on all three dimensions the answer is absolutely yes. The back-to-school marketing is not completed. We are committed however for the first half of this year on a theme somewhat similar to the fourth quarter that just ended in 2007. Not identical but somewhat similar and myself and Tom and Michael Cape whose is our head of marketing, who is very capable, he has been with us for just over a year, are spending some recent time actually we were together on Saturday, talking about the target customer to reinforce that message, and then, looking at our back half marketing spend, what's the most effective way and appropriate way to invest money and guarantee that we get a return on it.

But some of these imbalances, and the focus on, lets say fashion overvalue or whatever it is, do you think those imbalances would be improved by back-to-school, or is it too late for that to happen now?

No, I believe, Janet, and to be fair to me, I don't want to say 100%, but I am pretty confident that the imbalance can be rectified for back-to-school, and even though I think in the first half of this year the balance will be improved from the fourth quarter it will still be out of balance.

Okay. And should we expect a positioning change of the brand, or are you comfortable with this new positioning targeting the younger customer?

No, I think my perspective is that the core customer of Old Navy that's been there for 14 years, we should not change. We should evolve, I think as any good retailer would do. We should become more relevant, as any good retailer would do. So if some reason the imbalance in our marketing has caused us to get off our core customer, one of Tom and Michael Cape's and my priorities is just to make sure we get it back on balance.

Great. Lots of luck. Thank you.

Question is from Dana Telsey with Telsey Advisory Group.

Good afternoon everyone. You've talked about speed-to-market and how beneficial it will be. Can you talk a little bit about how you look at it impacting the business in all three divisions, both in sales and profitability? Does it help you manage inventory, raise margins, get more full price sales and the timing? Thank you.

I would say that it does everything you just said. Historically, we have been as high as 48 weeks working out, and that's unacceptable. We are not like some of the fast fashion retailers out there. But we certainly needed to change the number years ago. We have made some headroom in 2007, no question, particularly at Old Navy where the pipeline has been reduced pretty substantially. Is that exactly we wanted today? No. Are we taking some of those lessons and making them brand specific to GAP and to Banana Republic? Absolutely. So delaying decisions as long as we can, making sure we understand exactly how our product is performing, reading tea leaves in spring to affect summer. These, I would say, are not transformational ideas for the industry, but are somewhat transformational for Gap Inc. And the outcome is, yes, better product in the right store, at the right time, making sure that we can maximize right sale pricing and therefore maximize gross margin dollar per foot.

Thank you.

Your next question is from John Morris with Wachovia Securities.

Thank you. My congratulations, too, on a great performance in a tough environment. We are also glad to hear you enunciate the opportunity to enhance store level productivity through better use in real estate. I think given the rationalization that we have seen taken place at Gap North America, which I think something is like a third of the store base thing closed over the last five years or so, is the opportunity through that effort primarily at Old Navy and international? And, if so, how will you go about that specifically, in terms of better utilization of the square footage as oppose to just product improvement, how better to drive that improved productivity?

I think you can probably define right sizing in a number of different ways. Historically for us over the last six years with 800 store closures, right sizing has been defined by closing stores. In the opening comments I made, while they were brief, what I was trying to get across is, do we have opportunities to close more stores going forward? Yes. We announced that we are closing 85 stores in 2008. We have a big base. We have 32,000 stores, so culling out underperforming stores or stores that are no longer strategically important to us is what we are going to do, like every other good retailer going forward. What I can tell you is the closures of stores will come at a decelerating rate to our historical number we've closed over the last six years, but we are still going to be closing stores. The real unlock for us and the real value creation is getting our square footage per store right. And that is where that I believe we can do, we have done a little bit of that so far, just a little in the first part of 2008. But as you know, as the real state strategies aren't completed yet, that will be done some time by the summer and once we have those, I think then it comes over to our real estate teams to go out and execute on that. And I think our ability to right size our square footage which will make us more productive and at the same time other opportunities to optimize inside of that blocks if it is reduced by making sure we are represented properly in the right departments, in the right categories of the right fixtures, and densified in an appropriate way for these brands, yes. So I would be focused almost exclusively on North America, some work on square footage and Gap brand, absolutely. Some opportunity in square footage at Old Navy, absolutely. Some opportunities in square footage at Banana Republic, some, but not as much as I see in Gap brand and in Old Navy right now, and less so internationally.

So Glenn, with the right sizing I assume would come from leases coming up for renewal where you can relocate to more efficient size stores and can you give us a feel for -- are there a lot of leases coming up for renewals at Old Navy in the 2008?

Yeah. I am always amazed and I came forward, I thought it was a fairly big business, but I am always amazed how many leases we do have coming up for renewal every year. But to be fair, regardless, I think our traditional approach to a business is as you look at your store base as the lease renewal approaches. In some cases regardless of the term on a lease, if we have a store that is quite a bit larger than our prototype stores, and we have an opportunity to deal openly and honestly with our landlords and be able to give some square footage back, maybe in some cases even mark-to-market that square footage and get a remodel out of our current, those square foot you want to keep, I think that also presents us with an opportunity. So I wouldn't exclusively say, that the right sizing of the square footage will be driven by lease renewals, that's part of it. But I think the strategy that we're working on right now that it will be clear. The strategy is going to be by market, by store priorities, once that's clear we will go out and execute that strategy.

Terrific. Thank you.

Thank you.

Our next question is from Jeff Black with Lehman Brothers.

Yeah. Glenn, just a broad question for you. We talked to you originally and we had a lot of conversation about store productivity, and we've heard a lot today about really getting more efficient. And I just wonder what kind of year are we looking at, is it a year to get better profit margins? And then next year is the year where we will start working and nailing down a comp, and related to that, Sabrina, what kind of comp is being contemplated for the guidance of $1.20 to $1.27? I mean is this a down 5, up 5 sort of comp store sales? If you could shed any light on that for us, that would be helpful. Thanks.

Well, I'll let you answer the comp question. I'll come back.

Yeah. I mean Jeff, we don't guide specifically the comps, as you know. But what I will tell you again is that our focus, even though we want to get to positive retail comps, our focus is really on driving gross margin dollars. And especially in this year where we see the probability of the environment staying pretty challenging for the consumer, we think it's especially prudent to be managing our inventories in a very disciplined way. So does that make positive comping impossible? No. But does it make positive comping tougher? Yes.

And I think what we think, going forward, I think those are first part of question, Jeff, we are looking at is, we know this business in order to justify the faith of our investors and our shareholders, we have to start to show some growth momentum. And as we address the fleet and really hunker down to become more aggressive on cost, which will give us flexibility to invest appropriately in ways to correct the current traffic trend that we are on and to improve our top line sales. I think in combination all of those things can happen. But I'll tell you one thing that we've agreed as a management team is the continuum of time. Its exactly when is the right time to do that. We think we have a very good plan that we've articulated for 2008 and we are already having conversations a few of us, preliminarily about a 3 year plan and we know at some point this business has to start to show improvement on the top line. I think by do-over-do on inventory, do-over-do it on cost and getting to an improved earnings here in 2008 will provide us the flexibility to make intelligent decisions in the upcoming year.

And Glenn, just a clarification, how much of the store base do you think can be right sized? I mean is this a giant chunk of store that you think you can move through and right size?

I think and say it's a sizeable amount of our fleet, yes.

Okay, good luck. Thanks.

Thank you.

Question is coming from Lorraine Maikis of Merrill Lynch

Thank you, good afternoon. With the cut in CapEx, I assume that you are pulling back on some of the GAP remodels that you were expecting. Is this temporary or do you plan on letting those re-models go, and in terms of Old Navy are there any plans there in terms of changing the pace of re-models? Thanks.

Yeah, I'm glad you asked that question, Lorraine. So for GAP, we are actually not slowing down the pace, every model versus 2007. So we did about 70-75 re-models in 2007, and we would expect to do about the same level at Gap. Where you really see the difference in remodels is in the number of remodels in 2008 in Old Navy. So the number of remodels at Old Navy are really being scaled back in 2008, and the reason for that is because 14 years enter the brand's life, we all agree that it's time to evolve that store format. But we don't want to be extending the remodel dollars and rolling out a remodel until we're really confident about what format is going to be meaningful to our customer experience, and we also need to be confident that we've engineered that such that the cost per square foot is acceptable for a roll out. So, that really is a matter of time and that's a big difference in the number of remodels we are doing year-over-year.

Thank you.

The next question is from Richard Jaffe with Stifel Nicolaus.

Good afternoon. We say Stifel. Just a follow-on question, there is clearly some opportunity to improve product. You have hired on a couple of rate counts executives, Patrick and Todd. I am wondering what their impact has been, to date? How fast you anticipate their impact will be visible in stores? And how their initiatives will match with those marketing and with the idea of very tightly controlled inventories will they have the freedom to deliver their product?

I think that their impact to date has been actually substantial, even though neither one of them have put their own mark on the target audience the definition of how we are going to design into that in store just yet. I would add Simon Kneen, too, at Banana Republic business. These are incredibly passionate well respected heads of design. What I believe they have done more than anything else is they have given to that team. I talked about earlier about trying to teach the company to win again. Inside the design offices in New York and here in San Francisco, they have really lifted the spirits, they have lifted the quality of the work and I believe they are going to be huge ambassadors for attracting talent back into those offices. So that's the first thing they have done because of the respect level they have and how they've come into the business and how professional they've been. And their product will actually show up at different times. I think Todd's impact on Old Navy will probably be seen this summer. Patrick's impact would be limited this summer, would be more in the fall product that's going to go into Gap brand, and Simon will be more in the holiday product. But none of these needs less repositioning on its product than the other two brands I think we should watch him do work at Old Navy and the work at Gap more carefully. When it comes to the inventory piece, obviously the design people do not have a large say and in some cases, any in terms of what the inventory buy actually is, but it’s going to be us sitting down and evaluating how comfortable we are with what they are bringing to market. Again being very aware of the environment in which we're operating in and making intelligent inventory decisions and placing that very selectively as we look at the product they are putting forward. I think it would be easy for us to get ourselves excited too early, too soon until the evidence is there in terms of product acceptance to conversion and to a change in traffic at which point we were happy to buy more but until we've seen any concrete evidence we're not changing our philosophy.

Got it, thank you.

The next question is from Christine Chen with Needham & Company. Christine Chen - Needham & Company: Hi, there. Can you here me?

Yes. I can. Christine Chen - Needham & Company: Yeah. My phone has been cutting in and out the entire time. I was just curious. You've always said that your credit card customers were the most loyal, and I am wondering that as the product has gotten better, particularly at GAP core concept, if you've seen more transactions from your credit card customers?

We think that’s really important that base of customers who is on our private label, and now as you know in the fall, we launched a co-branded cards, we think that is a tremendously important and valued customer and we actually think there is even more opportunity just stay closer to that customer and to market to that customer has the base change meaningfully. I wouldn't say meaningfully over the last little while here now. Christine Chen - Needham & Company: And then as far as the share repurchase, could you help us think about how we should be modeling it in over the quarters for the evenly spread out?

It's hard to predict as you know we approach our share repurchases opportunistically. What I think is fair to say is we've tended to align the share repurchase waiting with our cash flows and our biggest cash flows obviously come in the second half of the year and in particular in Q4. Christine Chen - Needham & Company: Okay, great. Thank you and good luck.

Next question is from the line of Mark Montagna with C. L. King.

Hi. Just a question about the customer choices, in the second half of last year, you reduced customer choices at the GAP division by about 30%. Are you going to continue that this year and is that going to spread to other divisions?

No, I think the biggest opportunity in terms of managing the C-CAP is probably more at Old Navy this year than it is at GAP. We feel like we did a lot of the heavy listing both in terms of bringing our overall inventory levels in line by the second half at GAP and bringing the CCs back in line with what we think is a healthy year level that was all work done in the second half of '07. So as we enter '08, we feel good about that positions, the bigger opportunity in that area is probably around Old Navy.

By what percent would you expect the Old Navy customer accounts to decline?

I don't want to attribute specific percentage, probably less than what we did in the second half at Gap brand to bring them more in line. But I'm just pointing out that, that's the brand that probably has the opportunity in 2008 to tighten up the CCs.

Okay. Thanks.

And operator we have time for one more call.

Your next question is from Michelle Tang with UBS Securities.

Great, thanks. I was just wandering if you could share with us a little more color on the international business to sustain today from a profitability and returns standpoint? And then also how much potentially you think there is for the other brands in terms of total store overseas and the returns you'd expect to see there?

Well, we are making assessment now about how big the opportunity is. You heard me mentioned that beyond 2008 the only real square footage growth we see is going to an international business and our franchise business.

Great.

We only got 70 stores in franchise right now in 10 countries. So far, we are pleased with the results in those 70 stores. And I think I mentioned we are going to at least have an equal amount of those stores opening in 2008. International business which is rooted in Japan and Britain and in France has an opportunity to add more stores. But I think what they are doing, and they are being pretty smart, given the unique attributes of those marketplaces, this is an idea that really started in Japan for us, is doing stores within a store, and department stores, which is called in the UK a concession store. And that is a very good use of capital, has a great return for us, has a good sales per foot and is complementary to some of the more flagship traditional stores we have in London and in Paris. I think that our team there, led by Steve Sunnucks in Europe and John Ermatinger in Japan, and our Art Peck on the franchise side, have some levers to pull that we never introduced over 20 plus years ago in North America, which is you know standalone stores, malls, concession stores and franchise play. So that combination is a better use of our capital, will produce a better return, than if we just took our North American philosophy and dropped it into Europe.

Got it. Thank you.

Thank you. I would like to thank everyone for joining us on the call today. As always, the Investor Relations team will be available after the call for further questions. Thank you.