At this time, I would like to welcome everyone to the Gap, Inc. third quarter 2008 conference call. At this time, all participants are in a listen-only mode. (Operator instructions) I would now like to introduce your host, Evan Price, Vice President of Investor Relations.

Good afternoon everyone. Welcome to Gap, Inc. third quarter 2008 earnings conference call. For those of you participating in the web cast, please turn to slides two and three. I would like to remind you that the information made available on this web cast and conference call contains forward-looking statements including those identified in today's earnings press release which is available on www.gapinc.com as well as other statements that express our expectations, anticipations, beliefs, estimates, intentions, plans and forecasts. 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 10K for the fiscal year ended February 2, 2008. Investors should also consult our quarterly report on Form 10Q for the quarter ended August 2, 2008, and today's press release. 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 November 20, 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 the non-Generally Accepted Accounting Principle measure, free cash flow, which under SEC Regulation G we are required to reconcile with GAAP. The reconciliation of this measure to the GAAP financial measure is included in today's earnings press release which is available on www.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 Sabrina.

Thank you Evan. Good afternoon everyone. We are pleased that in the third quarter we were able to achieve earnings growth. Our focus on driving healthy merchandise margins and cost management have served us well in the challenging environment. I will begin today by reviewing the third quarter performance and then provide an update on our full-year guidance. First, highlights for the quarter. Diluted earnings per share were $0.35 versus $0.30 last year. Gross margin improved by 120 basis points to 38.7%. Operating expenses decreased by $95 million and we repurchased 5.7 million shares. For web cast participants please turn to slide four. Third quarter net earnings were $246 million. The effective tax rate was 38.2%. Weighted average diluted shares were 712 million. Please turn to slide five, sales performance. Third quarter net sales were $3.56 billion, down 8% to last year. Total company comp store sales were down 12% in the quarter versus 5% last year. A contributor to the spread between net sales and comp sales was the continued growth of our online division which grew 15% to $284 million. Please refer to our earnings press release for net sales and comps by division. Turning to slide six, gross profit; gross margin was 38.7% up 120 basis points compared to last year. Merchandise margins improved 270 basis points which was partially offset by 150 basis points of occupancy de-leveraging. The drivers of merchandise margin improvement were increases in both regular and mark down margins. Gross margin dollars decreased 5% to $1.38 billion. Please turn to slide seven for operating expenses. Operating expenses were $984 million down $95 million from last year. Despite the decline in sales we still leveraged operating expenses for 40 basis points. The drivers of the decrease were lower corporate overhead expenses and reduced store…

Thank you Sabrina. Good afternoon everybody. Thank you for joining us after another volatile day on the markets. I wouldn’t making an additional comment to what Sabrina spoke about and also give you just a very quick update on our brands. Since we embarked on our current financial strategy last summer which is driving margin healthier business, reducing cost and improving our return on invested capital, which has served us very well, what is unique about the third quarter was it is the first time we have anniversaried that strategy and the second thing unique about the third quarter was without doubt of the five quarter’s since we have been on that financial strategy this has been the one that has been the most challenging environment that we have traded into. So while we are pleased with our results, as Sabrina mentioned and we mentioned in our press release, I think the management team finds it that much more gratifying that we were able to improve our results year-over-year while we had those two unique factors we were faced with in the third quarter. Just to give a quick update on our brands I want to talk about Old Navy first. As we mentioned in previous conference calls that Old Navy’s new product flow that is really focused on its recently redefined target customer which is a 29-year-old woman who is on a budget, who buys for a family or for herself, that new product flow which is not completely aligned to that target consumer but is starting to get closer to where we want to be hit the stores in October. Inside of the October product flow there is a couple of categories we felt good about where we are starting to see the improved performance. Again, let me…

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

(Operator Instructions) The first question comes from Dana Telsey – Telsey Advisory Group. Dana Telsey – Telsey Advisory Group: As you look at your business in terms of the improvements and enhancements you have made both on the merchandise margin and the expense structure, for each of the businesses what opportunities do you see going forward in this new environment of value? Is there room on infrastructure or is there room on merchandise margin?

Across the board we believe that there is still opportunity with regard to average unit costing. We have put a big focus against that in 2008. We have made some good progress across all of our divisions and that has supported the year-over-year margin expansion we have seen year-to-date in every quarter and we still believe there are opportunities that exist out there. That is one area we will continue to focus on with regard to our margins. With regard to infrastructure a big piece of our expense, about 50%, is related to our stores and a big piece of that is going to vary with stores. We have been very disciplined about trying to keep those expenses in line as our sales this year have come down. In addition to the store related expenses we really are focused on every single line item of expense and we have had great success there becoming more disciplined, simplifying our work, working more efficiently to bring expenses down across the board. We have made a lot of progress but we think there is still some left.

Maybe I can add just a couple of comments to that. When we look at our business, three dimension protecting the long-term health of our brand I think that is critical of our brand. We are not just making short-term decisions. One of the things that we have committed to ourselves internally under the definition of long-term health is we really want to make sure as we take costs out of the business, and I agree with Sabrina wholeheartedly there are still costs to come out of this company, we want to make sure we do not take away too much of our marketing budget and do not take away from our customer service models. We have obviously just changed in the last 6-9 months our customer service model. We have introduced a brand new computerized scheduling system and I think it would be long-term damage to the brand if we went after that. Now there is variability to labor so we will make sure we play that properly with traffic. Those are two areas of our business we are trying to sort of put a ring fence around and go after everything else is on the table as far as we are concerned. We recently, at an analysts meeting in October, talked about one of our top priorities and everybody who was there heard from our brand President traffic is important to us. By getting down our costs within the company, getting under the cost structure, we can at least give ourselves the options to look at some offensive, [inaudible] initiatives in 2009 as opposed to continuously playing defense as we have the last number of years.

The next question comes from Jeff Black –Barclays Capital. Jeff Black –Barclays Capital : Glenn it looks like inventory is higher than sales are trending now in the quarter. What kind of assumptions are baked into the merchandise margin side of the coin and what kind of clearance do you guys think you have to go through right now? How much, in other words, do you have to clearance on the inventory?

Let me start by grounding again we just guided to ending inventory per square foot in Q4 in the high single digits. We are going to start anniversarying, we already have begun to anniversary very low levels of inventory. If you take what we have guided to and combine it with the fact that last year we were already down 15% that implies inventories on a 2-year basis being down over 20%. That is actually very similar to what we just reported in Q3 with inventories down 13% and LY being down 8%. So there is really not that much difference in the cadence overall of our inventory and we feel that from any historical measure these inventories are extremely tight. Now of course and it is especially true in this environment we are going to stay focused and intent on moving holiday liable products as early in the season as we can. That is obviously critically important and we have our goals with regard to how we are led to January and we have our goals with how much liable we will enter February with and we are going to stick to that.

The next question comes from Kimberly Greenberger – Citigroup. Kimberly Greenberger – Citigroup: The SG&A dollars on the year-over-year basis were down at least $100 million. Sabrina how much of that was that you had not yet anniversaried all the major cuts you had initiated in the middle of the year last year and how much of that can actually continue through the next three quarters?

We are starting to anniversary those levels because we finished our cost initiative actions at the end of Q2 for the most part last year as you know. So we actually are already at this level of savings. We are already lapping savings in Q3. Now we were able to achieve that again, as we said, a good chunk of that is store related expenses that we are very committed to managing responsibly as sales decline. We will expect them and will manage them to decline to a threshold level which doesn’t damage our customer experience. There is a chunk of that. There is also a chunk, as we said we really embraced a new culture and discipline around cost and so even though we are lapping the cost initiatives from 2007 now we are just finding other areas where there remain opportunities to save expenses and that is what you are seeing come through. How far that continues, definitely the bar gets higher and it gets tougher but I think as Glenn and I have both said we feel there is opportunities.

The next question comes from Adrienne Tennant – Friedman, Billings, Ramsey & Co. Adrienne Tennant – Friedman, Billings, Ramsey & Co. : My question is what comp range is the guidance, the implied $0.29 to $0.34 for the fourth quarter? What comp range is that predicated on and can we assume your inventory guidance kind of leads us to believe that might be the negative low single digit to high single digit range?

Yes, I guess the way to answer that is to say our assumptions for the fourth quarter are that the season remains difficult and there is no improvement in the macro economic environment that we experienced in the third quarter. I will try and frame that even more definitively by saying in the third quarter overall at the Gap Inc. level our traffic trends were down nine. They ranged, depending on the division, down six to about down ten. We are fully assuming that level of negative traffic continues. However, I will also say we are assuming there is not a significant worsening beyond that in those traffic levels. Adrienne Tennant – Friedman, Billings, Ramsey & Co. : Is it fair to assume that we have heard about this early November drop off that you have maintained trends out of the third quarter into early November?

We are not going to talk mid-month. There is so much shifting right now going on with the calendar. We will talk to you more about that when we do the November sales.

The next question comes from John Morris – Wachovia. John Morris – Wachovia: I think one of the things that took place during the quarter was instituting some vacation dates at corporate, if I am correct about that as it was reported in the trade press. I’m wondering did that help in terms of basis points, was it significant in helping in the quarter? Were you accruing for that it would come back in the fourth quarter? I’m wondering how significant that was.

It wasn’t significant. I think that as Sabrina said as we continue to embrace this new culture and now just rely on the two of us or the fifteen of us on management rely on really the larger company with somebody who is much more junior around the executive table thought this might be a good idea not only for our employees in terms of the hard work they have been doing and they are for the most part responsible for the results of the quarter but also as you mentioned we accrued these vacation holidays so it also had some benefit to the health of the third quarter. It wasn’t a big number. It is more a psychological embrace we have here. We are looking for every opportunity we can if possible to do a couple of things; One, ensure we are doing the right thing for the customers and always make sure we are doing the right thing for the employee and respectfully and then try to find a way to drive incremental margins, reduce costs and commit ourselves to a return on invested capital. That idea which again was small in scope relative to the other ideas we have put forward to hit that close to $100 million reduction in SG&A is just embracing the fact that everybody here is looking for ways in this difficult environment to give ourselves the flexibility and fighting chance to make our numbers.

Just to be clear on the accounting, after the Q3 event because when people record that PTO, we call it paid time off for vacation time, in the quarter we just take that time against the accrual they have already built up versus taking salary expense. So that is behind us now. John Morris – Wachovia: The other question I had, Sabrina, you talked about the average unit costing initiatives earlier that are really helping the very good performance in gross margin. Can you dive a little bit deeper into that? You talked about this a little bit at the analyst conference day. What are you doing with vendors to help your initiatives there?

I think that there was a bunch of things we have been doing as you pointed our rightfully so. For the last 12 months we have put together a strategy on a number of fronts. How do we make sure we are improving our quality, getting more flexibility which is actually key to us because we never really had a flexible model and a flexible relationship with vendors and then reducing average unit cost. What we have embarked on since that 12 months has produced good results for us and I think that is baked into the P&L results you are seeing. Going forward I think what you are seeing going on is that there is a dynamic shift. There are a lot of people canceling orders and for a company that maybe had a head start on that, particularly on the flexibility side, and a little bit closer to the market for us being in 48 countries, having five hubs around the world, we are finding opportunities now where people are vacating some capacity. In the first quarter and second quarter we can step in and actually make sure we can be opportunistic and fulfill some of that capacity that has been left behind. That certainly has been helpful to us. East sourcing which is something we have been very excited about in our outlet business for the last 12 months we are carefully, not across the board, but carefully expanding that to our other brands but also given I would say the uncertainty that is going on in the vendor community because there are so many people who are now considering their inventory levels more seriously, looking at the macro economic environment and making some tough changes, being on east sourcing which also produced speed has been good for us. We now have as part of a long-term strategy we have broken out the fabric component to the cut and sew component of us getting product done and the fabric piece trim we have a really talented team and I just happened to be in a meeting with them last week talking about travels around the world and some of the opportunity they have uncovered. Our view is given our size and the fact we have a head start on this more because we were lucky than good, starting doing some work on it because in the state of our business 18 months ago we were in a good position to continue to take the opportunities. Now with lower oil, lower commodity prices and an increase in capacity have really bought to somebody who now has a more flexible model.

The next question comes from Richard Jaffe – Stifel Nicolaus. Richard Jaffe – Stifel Nicolaus: A quick question on some of the initiatives we have seen on the merchandising front. Todd [Oldham] and his contribution to Old Navy, I’m wondering how that is playing out? Is Todd still a key force here? Some of the initiatives Patrick Robbins has brought to the table, some of the initiatives we are seeing in stores today, the striped scarves, striped sweaters, what should we look for going forward and how impactful have these guys been?

First off I would say it was definitely a team effort. There is always going to be somebody that is head of design, in Patrick’s case I’m sure. Looking at a little more attention Patrick would be the first person given his incredible skill and I would say matched by his large humility would say it is a team effort. Todd is involved. Todd played a role in what you see in the store right now. A little role. I think that the work you see that Todd has brought to the business you will be seeing more in January but he has been involved in it for sure. We have a really good merchant team inside of Old Navy that really has embraced the brand and I think the merchants play a key role in interpreting what it is the designers want to do and what their ideas are inside the store. Actually I think we have seen the beginning of some better product presentation, more aligned with our target consumer inside of Old Navy. In Patrick’s case he has been at it much longer. He has been here 18 months. Definitely his aesthetic and view on turning basics into classics and returning Gap to what it is but really with a modern twist, I think you are seeing that inside the stores and the feedback has been really good. He also has an amazing team in New York in design and added somebody to [inaudible] in the last six months, somebody in accessories in the last six months, added some strength in men’s which is good but he has a very cooperative and talented merchant team here in San Francisco led by Karen Helman and together under [Marcus’] leadership I think that we are starting to see definitely some feedback traction inside our stores and feeling better about the path in which Patrick is taking that brand.

The next question comes from Randal Konik – Jefferies & Co. Analyst for Randal Konik – Jefferies & Co. : The question we had is you have done a pretty good job of repositioning the Gap brand over the past year. In the context of the often mentioned core criteria of marketing you always talk about, how would you gauge the health of the brand today? Also, given where we are still waiting before increasing investment there which criteria do you think is the most important for making the call to step up marketing spend at Gap brand?

We are feeling step one being the product, we definitely as answered previously feel pretty good. The product success is measured on sustainability, not just any season. I think Patrick, Karen and under [Marcus’] leadership I think that we are feeling a degree of confidence there no question. The second part is store execution. We put the new brand customer service model in place, added the new computerized scheduling system. Are we there yet in the stores? I spent 2.5 days with the Gap team last week. It is feeling better. Definitely great attitude inside the stores. I’d say that is not quite there. The marketing message, you will see in this holiday season the Merry Mix work we have done, how we have gone more digital. The reinvestment of marketing isn’t singularly defined by television. It is defined by a step up in our marketing spend. I think our change in our mix a little bit in our marketing so we feel confident the product, change a little bit in the mix, but a little more aggressive than you have seen before. Not back again to the days of 2006 which were solely promotional. I think we are a little more thoughtful. I would say the marketing heart and soul of what the brand is all about is getting pretty darn close. The last step which is one I had hoped I could talk about positively six months ago which is the consumer responsiveness, and those are all of the stars in our formula that need to be aligned in order for us to really step up. We are definitely not going to be into cutting mode when it comes to marketing right now. We’d like to hold the level we have. But we also believe there is a need down the road to step up marketing but we are going to start with a mix of our marketing as opposed to increasing the dollars right now and I think part of that driver is stores have a little bit further to go in terms of day-in, day-out execution. We are not quite there yet. Obviously your guess is as good as mine in when we will see a more responsive consumer. What you don’t want to do is spend a dollar incrementally in marketing and really the psychological value of that is $0.25. So, two our of four is good. Still working on one which we can control and hoping and praying every night the other one improves.

The next question comes from Barbara Wyckoff – Buckingham Research. Barbara Wyckoff – Buckingham Research: On the comp decline, I know we talk a lot about traffic but there has to be some other factors at play here. How much do you think outside of traffic is due to the environment, low inventory, merchandising issues? Then I have a follow-up.

It is really hard to untangle all the variables at play. To be quite candid we know that we have had traffic issues long before the macro economic situation got as severe as it has become. So that has simply exacerbated an issue we know we have had to address for some time. I will tell you what we have been really pleased with year-to-date and probably really over October was our average unit retails were really a big driver for our divisions across the board through most of the year. Those have been really strong. In October when we saw the traffic decline more precipitously and the customer resistance to buying as we said on our sales call we had to be more in season promotional than we had originally anticipated. So we got a little more pressure on AUR but our conversions and our UPT’s have mostly really improved across the board. Barbara Wyckoff – Buckingham Research: If you could talk briefly about the progress in negotiating with the mall developers on your store reduction plans?

I would say there are two parts to that. One is the ongoing negotiations we have given the 3,000 or so leases we have that come up somewhere between 400-600 a year. The natural laws of supply and demand have started to kick in over the last couple of months where a lot of people who were growing and adding square footage have now reconsidered that as a strategy. Maybe not permanently but definitely for the near-term. There have been some people that have vacated square footage already. They have declared they are going to be vacating square footage and I think there is a very large question mark in January and beyond how many of the retailers may be forced to make a lot of the same decisions in the spring as a lot of retailers did in the fall. I think that puts us actually in a good position for the re-negotiation. We have the 40 million square feet. We have this really strong balance sheet. We have never defaulted on any of our leases. I think that puts us in a good position to make sure our re-negotiating team uses that leverage as best as they can. That kind of goes hand in glove with this parallel strategy that came up about 3 months ago which is the ability to reduce 10-15% of that square footage. Somewhere between 50-75 stores to be touched in 2009. I look at it this way, we can argue it is the best of times and the worst of times. The fact that it is the best of times is that landlords are really trying to hold onto people like us. Maybe our productivity is not as world-class as it used to be but our brands still resonate. We obviously have good, quality real estate. We pay on time and we have a strong balance sheet. Therefore we are dependable. I think people would rather keep us in their mall maybe in reducing 5,000 square feet and maybe us given an option that may not have existed three months ago to go across the street or somewhere else because of the supply and demand change that is currently going on in the marketplace. I would argue that we are still in a good position. Negotiations are going on. We have no reason to change what we put forward. Obviously if there was a larger opportunity to execute this because of the reasons I just gave at a faster rate, we have the people in place and the ability to do that. Right now it is still full steam ahead. The landlords certainly appreciate our clarity, because we have never been historically known to be clear on where we are going, and secondly the transparency but we know that we have to be firm on our negotiations to get executed on both of those points I just made.

The next question comes from Jeff Klinefelter – Piper Jaffray. Jeff Klinefelter – Piper Jaffray: First I just wanted to clarify something. During the analyst meeting you had here a few weeks ago you mentioned in October the fourth quarter guidance you were maintaining but there was some assumption the volatility in sales at that time would need to stabilize. I can’t remember the exact language but I think you made some comment to that. Given the fact things have deteriorated even further since then what seems to have changed or what is going better for you operationally that enables you to hit these numbers even with the further deterioration?

That is a great question. I think that what we are really pleased with is that even in the third quarter which was extremely volatile and had varying weeks of performance, we as a management team and all of our employees together have such a commitment to really driving our business forward we were very pleased to be able to drive at the end of the day in Q3 this kind of earnings performance against that backdrop. Even though it is true that the volatility has not subsided, to some degree our performance through the third quarter gives us confidence that the intensity at which we are going to pursue our biggest selling season can result in this range. Now again I say we have assumed that the environment does not improve. That it remains as it did in the third quarter but we also are assuming it does not significantly deteriorate from the current state. Jeff Klinefelter – Piper Jaffray: You said the online businesses or direct businesses were up 15% in the quarter? Is that correct?

Roughly 15%. Jeff Klinefelter – Piper Jaffray: Any context beyond that in terms of the brand performance or more importantly the kind of trends through the third quarter because we have been hearing a lot about pretty rapid deterioration of online business.

We have certainly seen some market information that shows the online business is not immune to what is going on in retail. We get that every two weeks across Toby’s desk and he is very quick to share it with us. I think one thing we have done, one is obviously we have a stellar team in our online business. One thing I think we have done is universality platform we put into place in May and I think it has differentiated us in the market place and I think that team has always said to me and to Sabrina that business more than any other one we have is all about innovation. It is all about trying to bring something new to the market place. It is not just a place where you can have a site and offer some price on delivery. What are you always innovating on? People who shop those sites like that. Universality for us I think everybody on the phone knows to toggle across our four tabs with Athleta to be eventually our fifth tab some time next year and to checkout one time is a very positive offering. That is not the end-all, be-all but it certainly is a positive event, investment and innovative idea that positions us better than most. Jeff Klinefelter – Piper Jaffray: Any brand color?

I think the brands online for the most part shadow what you see in the retail stores. I think the Gap business when the people from the online business were here right now they would feel pretty good with the direction they see the product and the feedback they get from their customers. Old Navy, from their perspective, they say is starting to show signs of at least improving the offering they have. That is the feedback we get from our online customers. I would say for the most part it emulates what you see in the stores.

The next question comes from Brian Tunick – JPMorgan. Brian Tunick – JPMorgan: Around Old Navy from a capital and I guess pricing perspective maybe you could just update us on what is happening in Old Navy to the new format you were testing in a couple of locations and how that makes you think of store refreshes and capital expenditures next year? Then at the analyst day you talked about the new pricing architecture. Where are we on the roll out there? Any learning’s?

I’d say the pricing architecture is really in the early days. I reference 5/10/15 shop that Tom and his team introduced last month. I think that is pretty much a great idea for that business, very consistent every day value. People can plan it and buy into it. That is rolled out everywhere. That would be the only sort of initial component of what next year will be completely redone pricing architecture. I personally, and I think people on the phone might agree with this and in the stores you hear it on a regular basis Old Navy’s pricing architecture had people confused. You could walk into any concept room on any given day and get five or six different messages coming at you. From a value perspective one thing I know about the value business is that clarity is critical. Not just depth of pricing and offering, but clarity and consistency. We really have, what I think, is a pretty good plan figured out. We have decided to go with 5/10/15 and we felt it was a good idea with the holiday season and again in 5-6 months we bought into it, negotiated it and we feel good about it. On the capital front even though we did throw out two stores, I really would say there is one store that we dabbled in with a few ideas more like a laboratory. The other one at the end of this month will open up close to our head office. We are going to watch it carefully. All our brands, to be honest with you, have an opportunity to reposition themselves physically to the customer. Old Navy hasn’t been touched in 14 years and it is tired. When it came out it was really world class. It was different. It had a different way to speak to somebody, fashion at a price. We lost that over the years and that is part of the reason the brand has not been performing. What I have seen so far and I played a role in it is not only taking it back to where it was but keeping the ingredients that make it special and different and a powerful brand. Not a retail store that sells products at cheap prices but a real brand. What I have seen is something that for now I feel good about. We are going to have to roll it out to more stores in 2009 and that is certainly what we are looking at when it comes to traffic being one of our top priorities. One of the derivatives of getting to the traffic numbers is making sure we have a compelling physical offering and Old Navy has 1,050 stores and physically there might be a handful that we like.

The next question comes from Janet Kloppenburg – JJK Research. Janet Kloppenburg – JJK Research: You talked about some of your objectives to drive healthier margins and higher returns on invested capital. I’m wondering if Old Navy will be a contributor to those goals in fiscal 2008 and if not when do you think the timing of the brand boosting margins for the overall corporation can occur. Also with respect to those parameters in Banana Republic I think it felt for awhile like they were a contributor but it feels like that brand is slipping a little bit and I’m wondering if there is something fundamental going on at Banana Republic or if you think it is just natural with respect to the luxury customer?

I’m going to take it kind of to a high level because as you know we don’t segment report. We don’t speak very specifically to each division’s margin structure. I would tell you across the board we have been very pleased with our results in bringing average unit costing down. Old Navy in particular most recently had really done a terrific job as Gap had earlier in the year and continues to do at really looking at what their customers value, how they re-engineer their product, how they bring that costing down without in any way compromising their quality. They have been highly successful. Even though there has been pressure and we have had to move units through promotions, etc. and we have had product acceptance challenges there has been some air cover provided by our strong management on the average unit costing side. I would say Banana Republic up until most recently when we saw their traffic really start to drop off into the third quarter had a very healthy profile as well, both on the average unit costing side but also on the average unit retail side. So on the ROIC front, that formula really has two levers. It is the earnings lever and the capital lever. On Old Navy because we really held back this year quite a bit waiting for a new prototype to come we haven’t extended so much capital as we have in past years in Old Navy. We are not growing the fleet that big this year. I think we are only net openings maybe 5-15 or something. We haven’t done much remodeling. So the capital spend against their earnings are much lower.

What I would add to what Sabrina just said about Old Navy, I think all our brands are going to have to contribute for us to hit that key financial priority of ours in proving return on invested capital. Having said that, Old Navy has a big role to play there in terms of getting its customer back, its brand positioning being bought into by people who used to shop that store frequently over the last number of years and we have lost some of that traffic which has cleared us. We are expecting it to play a leading role on behalf of the portfolio of brands we have on a number of different fronts but also as you suggest it contributes to return on invested capital. It is a key to our achieving that goal. Now you add to that the environment in which we are currently trading, we look to Old Navy. We look to all our brands but we look to Old Navy and say this is really one of the reasons it exists inside the business. During these times when people are a little more careful about what they spend and might need a little more convincing and the price portion of the value equation becomes more important we count on it. So knowing what we are going through right now is not going to come to a screeching halt in the holiday season, this is the macro environment and it will likely continue for some time into 2009, that is why we feel a bit of a sense of urgency that what we saw in October which is not completely done yet as we come into January to make sure Old Navy steps up on behalf of the portfolio and carries a fair share of its weight to make sure it is not only getting some momentum on the traffic front but also plays a disproportionate role on our portfolio because it is the reason it exists. Janet Kloppenburg – JJK Research: On the front, any progress with respect to bringing in a new GMM at Old Navy?

We have had a number of great meetings. I think October was sort of a shock to people on a number of different fronts and definitely anybody who was thinking of switching companies it was certainly a shock to the system. At last report when I was with our team reviewing some candidates I think they have a strong list. I think Tom is working very hard and knows it is the most important hire he is ever going to make because it truly is going to be his partner inside that business. So I am impressed with who they have on the list. We are working hard on it and hopefully we will have some news in the near future.

The next question comes from Marni Shapiro – The Retail Tracker. Marni Shapiro – The Retail Tracker: I’m curious about your international business. If you could remind us as of today what percentage of your sales are coming from your international businesses in total and was there any foreign exchange impact particularly as it relates to Canada? I know several of other retailers have commented on this. Any insights into the trends internationally whether it is traffic or reaction to product in Canada, Europe and Asia that differ from the U.S. across the brands?

With regard to the international businesses as you know the foreign exchange rates have been incredibly volatile lately. So on the revenue line for the first half of the year we actually got benefit from foreign exchange and as the dollar as strengthened quite a bit especially against the Canadian dollar where we have a very healthy business with all three of our brands as well as the British Pound it did hurt us on the revenue line but not that materially. It was about $15 million for the quarter. Overall international tends to represent about 10-12% of revenues in total.

What I can add to the trading climate outside of the United States we do go to Canada quite a bit to look at our sales there in the Canadian market place that I know quite well has not been effected quite as badly as we are seeing here, mostly grounded in the fact their housing crisis is limited to non-existent compared to what we are going through here. So we actually look often, in some cases back to the question Janet asked about product, so knowing the macro environment while it is not bullish in Canada it hasn’t gone through the events we are going through here and there is a change the more normalized state to look at your product and see how consumers are reacting. I think Canada is effected to what is going on here but still actually a pretty good retail environment for us. The U.K. is as bad as it is in the U.S. Business there is mostly rooted in London but it is not a good retail environment. I would say the U.K. retailers have shown a level of aggressiveness that is unprecedented. The Japan business I would say the trading environment there from our perspective is actually not too bad on the trading environment. It feels pretty good to us. Not immune but actually feels good. Had the head of our Japanese business in this week and he gave us an update on the market place in general. Then we trade only in a few other countries with our franchise business and that is really a mixed bag. The Russian economy which has really come to a quasi screeching halt to some other markets we operate in which to them it seems seamless. So that is a mixed bag. Marni Shapiro – The Retail Tracker: Would you say generally the product is being better accepted then across the board excepting for the pockets where you have painted the environment so bad, but generally do you see the products being better accepted?

I would say that is true, yes.

The final question comes from the line of Lorraine Maikis – Merrill Lynch. Lorraine Maikis – Merrill Lynch: Now that you are almost debt free can you talk about your use of this capital going forward and should we expect more share repurchase in the near-term?

We are really committed. I think the headline Lorraine is that we remain committed to our balance sheet philosophy and our cash distribution philosophy. So our two biggest principles are we made a decision long ago when I was treasurer that we weren’t going to be reliant on capital markets. We are always going to keep this big trench of cash on our balance sheet as I said in my remarks for working capital and for reserve. Above and beyond that we remain committed to distributing excess cash to our shareholders. Every year we will first look at what capital investments can we make that we firmly believe will drive improving ROIC and will drive our business forward in terms of that metric and what investments are important. So once we have set aside that capital we have generally found we do end up still with excess cash. Our philosophy is the same. We expect to continue our share repurchases. We always have for a long time proceeded with those on an opportunistic basis. It is tricky to quite know the timing and the pacing but we certainly remain committed to share repurchases and distributing excess cash.

I’d 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.