Good afternoon, ladies and gentlemen. My name is Kristen, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Gap Inc. Third Quarter 2011 Conference Call. [Operator Instructions] I would now like to introduce your host, Katrina O'Connell, Vice President of Investor Relations.

Good afternoon, everyone. Welcome to Gap Inc.'s Third Quarter 2011 Earnings Conference Call. For those of you participating in the webcast, please turn to Slides 2 and 3. I'd like to remind you that the information made available on this webcast and conference call contains forward-looking statements. For information on factors that could cause our actual results to differ materially from the forward-looking statements, as well as reconciliations of measures we are required to reconcile to GAAP financial measures, please refer to today's press release, as well as our most recent annual report on Form 10-K, and our most recent quarterly report on Form 10-Q, all of which are available on gapinc.com. These forward-looking statements are based on information as of November 17, 2011, and we assume no obligation to publicly update or revise our forward-looking statements. Joining us today on the call are Chairman and CEO, Glenn Murphy; and Executive Vice President and CFO, Sabrina Simmons. Now I'd like to turn the call over to Glenn.

Thank you, Katrina. And welcome, everybody. In a few minutes, I'm going to hand the call over to Sabrina, she will take you through all the key metrics in the third quarter. She will talk about the fact that the business delivered $0.38 earnings per share, slightly above consensus. She'll certainly reference that fact the company leveraged SG&A and did a good job on expenses. She'll talk about the fact that our inventory is in decent shape coming into the fourth quarter. She'll reference that we used $700 million in cash to buy back shares and to pay out a dividend. Those are some of a number of financial metrics that Sabrina will take you through. To me, there's only one metric that matters: The company had a minus 5 comp in the third quarter, and that is unacceptable. Now inside of that, our Women's business had a negative double-digit comp in the third quarter, and that's where a lot of energy and time is being put in by our brand presidents, our senior merchants and myself to reverse that trend, which is the largest contributor to the minus comp that we experienced in our business in the third quarter. If you look at our 2 biggest brands, talk about Gap brand, which is, as we said on the last 2 calls and at our October meeting with analysts, is work in progress. I'd like to think that when people go to stores in December, they'll start seeing the beginning of some changes to the business when it comes to its aesthetic, in terms of the quality of the product, in terms of the acceptance of color. They'll start to see the beginning of some changes in the month of December. I'm feeling better about what I'm seeing coming in…

Thank you, Glenn. Good afternoon, everyone. Our third quarter performance demonstrates a continued focus on investing in our future, returning excess cash to shareholders and maintaining expense discipline. Specifically, we continued on our path of executing against our strategic goals to support our long-term growth, while returning $700 million to shareholders, with $645 million in share repurchases and $55 million in dividends. And we tightly managed our operating expenses, which leveraged to 40 basis points. Please turn to Slide 4 for our earnings recap. In the third quarter, net income was $193 million and earnings per share was $0.38, down 21%. Turning to Slide 5, third quarter net sales were down 2% to $3.6 billion. Comp store sales were down 5%, with the differential due primarily to non-comp stores, growth in our franchise business and our Athleta and Piperlime businesses. Total sales and comps by division are listed in today's press release. Turning to Slide 6 for margins. Third quarter gross margin was down 450 basis points. Merchandise margins were down 400 basis points, and rent and occupancy deleveraged by 50 basis points. Third quarter gross profit of $1.3 billion was down $191 million to last year. As we foreshadowed all year, though our average unit retails were up, the increase was not enough to offset even higher average unit costs. Turning to Slide 7 for inventory. At the end of the third quarter, inventory units per store were down and inventory per store in terms of dollars was up 6%. Please turn to Slide 8 for operating expenses. Total operating expenses for the quarter were $968 million and leveraged 40 basis points as a percent of sales. This includes $149 million of marketing, up slightly to last year. Please turn to Slide 9 for capital expenditures and store count.…

That concludes our prepared remarks. We'll now open up the call to questions. [Operator Instructions].

[Operator Instructions] And your first question is from Marni Shapiro with The Retail Tracker.

Could you talk a little bit about your online business as you think about the holiday season? You've put a lot of levers in place on free shipping and different kinds of campaigns As you think about it holistically, will you separate out what you're doing at Piperlime, Athleta? Will you be more aggressive at Old Navy? Is it easy to do that when they're intertwined on the website? Just how you're approaching the whole business online.

It's actually -- it's not only easy to do, but it's what we're doing right now. I mean, first and foremost, we approach the business as this is a holistic brand, Old Navy, Banana Republic are a brand, and we run 3 brands, that's why we moved our outlet business and their infrastructure into the specialty store business at the beginning of this year to make those 2, which were previously distinct teams, operate as one business because the brand matters the most. Under Toby's leadership, I think that, first, him and his team look at what's the right thing for the brand, how can come across to customers as a business, because we've learned over the last 3 years that our customers increasingly cross-shop between our online business, our specialty business and our value expression of the brand. So recognizing that, we're going to make sure we are not disconnected. Now with that said, it's a unique channel. We have a separate team that runs it. While they buy the same product, they take different tacks in terms of their marketing, so we certainly have a -- because let's start with the first 2, Marni. I mean, Athleta is completely disconnected from the other 3 brands, so it runs its own business. It has its own P&L, and it takes different tactics than you'd see at our 3 more established businesses. That's critical for us. Because I think you may have heard us mention it before, as we start opening stores of Athleta, we start putting in new ideas, new processes, a brand-new operating model. And because we believe some of the ideas and the lessons learned, that Toby and Scott Key, who runs our Athleta business, are going to get on a smaller fleet, could be applied into…

Your next question is from Brian Tunick with JPMorgan. Brian X Tunick - JP Morgan Chase & Co, Research Division: I guess, Sabrina, any comments you could make regarding what you're seeing for AUC as we move into the spring season, particularly at Old Navy? And then for Glenn, it sounds like you're contemplating an aggressive Q4. Does that mean your implied guidance for Q4 assumes you can comp, let's say, down mid-single digits again like you did last quarter and still hit your numbers?

Brian, I'll start with your first question about spring. I think similar to what you've heard from a lot of people in our sector, spring pricing is definitely better. The underlying cotton prices are definitely down from the holiday peak. They are, however, definitely still up versus spring '11 and spring '12. But improving, and as we know, we're glad to see that overall cotton is staying kind of at a good position, so that foreshadows good things for us as we move forward in time. But spring '12 is definitely above spring '11.

And on the comment about aggressively competing, I think there's a motherhood component. I think everybody, given the environment at which we're operating in and given, in our case, the situation which we're coming from with this performance in Q3, we were going to be aggressive anyways. We've just decided, particularly, we'd look at Old Navy and their minus 9 comp in October, we're going to have to step up our aggressiveness in the fourth quarter in order to get a better performance on everything I talked about -- or will talk about now in reference to my opening comments. That's all assumed it's in the company's guidance. But we've have been looking a lot at the Old Navy business. If you look at it, they comped in 2010. They had about a, give or take, minus 2 comp in Q1, they had a flat comp in Q2. And as Sabrina said, Q3 and Q4, we knew that's one of the highest costs were going to be felt in the Old Navy business, and greater in Q4 than in Q3. So if you just take the numbers we guided to back in May, that we said the back half, our average unit cost would be up 20%. We said the big driver of that 20% increase in the back half was our value business. And if Q4 is greater than Q3, you can deduct pretty quickly the kind of increases Old Navy would be facing in the fourth quarter. And our AUR in Old Navy was up in the first quarter. It was up greater in the second quarter than the first. It was up that much greater in Q3. But now you get to a point where the model we put together economically at Old Navy that Sabrina and…

Your next question is from Dorothy Lakner with Caris & Company. Dorothy S. Lakner - Caris & Company, Inc., Research Division: I just wanted to follow up on the question on Old Navy. And, Glenn, if you could just -- want to make sure I understood what you were saying earlier in your remarks about Old Navy and the good, better best. Is what you're saying, that the better and best is a little bit too pricey for that consumer and you will need to get more aggressive in the fourth quarter? Or are you talking sort of longer-term, you need to find a better balance between the 3 buckets at Old Navy?

Dorothy, this is the ongoing challenge of a business like the apparel sector, where the timeline between when you put your plans together and you actually get your product coming in is broad. Therefore, when we planned out Old Navy's assortment, and Tom Wyatt and Nancy Green made these decisions in 2011, they just looked at a price bands that were just too narrow. And I agree with that. Strategically, as I said in my opening comments, we have to broaden the bands of our pricing. We've been testing this. We just didn't do it all of a sudden. We've been trying that in certain categories, and we've been getting good response. Now when you make that decision, and then it was all in advance of us recognizing and understanding the kind of cost increases we would see in the business, what was intended to be a band of maybe better pricing above the good of x percent, greater and best pricing of x percent greater than the better pricing. And when your costs come up at a much higher level, we anticipated a year ago, the answer is that as a percentage of the business, these are small shifts. We would never let any of our businesses swing the pendulum dramatically. But moving some of the unit assortment into better and to best, which I believe is absolutely strategically correct, but the pricing that's had to go into that to get a gross margin we're comfortable with, in some cases, is more of a challenge for our customer. And we're hearing that. So what I'm saying is, strategically, the assortment and the management of it going forward, Old Navy will have to -- Old Navy will be continuing that strategy going forward. They'll have to make some adjustments in…

Yes, definitely, Women's. I mean, if you look at some of the -- I mean, this assortment shift is certainly, it's broad-based. It's in Kids, it's in Baby's, it's in Men's, but it's certainly in Women's. And I don't want to leave anybody with the impression that the only issue we're dealing with at Old Navy in its Women's performance, as I quoted a Gap Inc. number but applies to Old Navy, which is double-digit negative comp in Q3, that the issue is broader than just consumer acceptance of the value proposition. I'd also say, and so would Nancy and so would Tom, that some of the choices that were made, the product acceptance is also an issue at Old Navy. It's a combination of both.

Your next question is from Paul Lejuez with Nomura Securities.

Can you maybe give a little bit more detail on the cost that you're anticipating in China? And just wondering, how does this impact when this business turns profitable for you guys?

Yes, Paul, we said for a long time that China is definitely our longest term investment. Meaning, like when we started several growth initiatives in 2010, we knew China would take the longest to become accretive, and that's actually precisely how it's turned out. Almost every other growth initiative we've launched is now healthy performance, not dilutive. China, as predicted, would take some time. So definitely, dilutive this year, likely dilutive next year as well, because again, it's a very long-term investment, although we are very pleased strategically being in the country, pleased with store performance. What we know in a developing market, and it's even, in some areas, more challenging than we envisioned, doing business in a developing market is very different than a developed market. It's taking more headcount. It's more burdensome administratively. So those costs are heavier than initially envisioned. We're also putting a lot of money into marketing, of course, because we're trying to build our brand. So we believe in the country, we think it's really important for our long term. As you know, we are happy, we're not really hugely exposed, we haven't been overly aggressive with our store growth. We should end this year with about 15 stores. So it's not like we have been overly aggressive in our view, in our exposure to it. And as predicted, we'll be dilutive given the importance of really investing correctly in the overhead structure in marketing in particular.

To add to that, Paul, is if we felt there was some issue in terms of brand awareness, and I think Sabrina was right, one of the big investments we've made, and I'm actually comfortable doing it, is to make sure we continue to keep up a fairly aggressive level of marketing in 2011, 2012 and probably beyond. Big country, loving American brands, but we have to make sure that our brand -- because a lot of new brands are coming into China, and every time something comes in, that is the bright shiny object. So keeping our name front and center and really putting money behind marketing has been a strategic call we've made, probably a little greater dollar investment than we envisioned 2 years ago when we first put this on a piece of paper, but we are getting the benefit of brand awareness. And if we weren't getting that, we'd be the first people, because most people in the call know us well, that we would not be advocating and telling everybody we're going to open 30 stores in 2012 if we didn't feel the acceptance of the brand. And the performance of the top line right now has given us the indication, the motivation to double our store count from the 15 we're going to end with this year to opening 30 new stores in 2012.

Our next question is from Stacy Pak with Barclays Capital.

Just a couple of follow-ups and then my question. On the promotional, sort of, bend you have to take at Old Navy, is it really centered in Women's or is it the whole family? I wasn't clear on that. And if the pricing needs to be below your expectation in Q4 at Old Navy, what's the offset? And then more broadly question, can you comment on what you're seeing internationally, particularly U.K. and Italy, weather impact, what you saw during the quarter, what you're seeing from that consumer ticket, is there anything you can talk about?

Yes, all we were indicating on the call about Old Navy is that there was always a plan to be aggressive. Old Navy has something of an association with Black Friday, Thanksgiving weekend and holiday. So there was always a plan to be aggressive. I think what we're looking at right now is when you read the business, and we got some early reads in early October, as we were putting together this assortment, and as I explained to Dorothy earlier, and had a small shift to better and best, we're not talking about anything significant here, all we're doing is being transparent that when we look at that, some is being accepted, fine, that's great because the product is right, the value proposition is exactly what somebody will pay. In some cases in this environment, those are not being as accepted as well as we would have liked. So this is -- we're targeted. The marketing campaign and the promotional element that gets to Old Navy's value proposition for the family is absolutely intact for November, December. Over and above that, in a small way, we're going to have to be targeted in Women's in particular to make sure that we bring the pricing in a few categories and the small number of styles in the better and best bucket to make sure we're more competitive than we were in October to make sure we move those through. And also, what's important to me, not derail the ultimate strategy, which is to broaden our price point over the long run. So you don't want anybody's perception in those few categories and few styles to hurt the overall strategy. So by sharpening those up, that will not only help for the fourth quarter, but will help with the brand image for Old Navy going forward.

And, Stacy, just to underscore what Glenn said. We have contemplated several scenarios in the range we reaffirmed, and as I mentioned, we fully anticipate continued pressure on our margin in the fourth quarter. And I said in particular on the merchandise margins because of some of these scenarios embedded on making sure that we're being very competitive in this promotional environment we expect.

Going to Europe, while we -- if you look at our business right now, there's 2 things we've been doing in Europe which we still feel very confident, and even though the economic situation, the consumer sentiment is very difficult in the European market. One, we continue to make investments in our value business. So our factory stores, our outlet stores in the U.K., we've opened up power centers recently. We still believe that's absolutely the right thing to do particularly in this environment, and that will continue until 2012, as well as factory stores and outlet stores in Italy. Our online business is only a year old, so we're going to make the investments, as you've heard us in October, for language and some other investments which we're going to make in our site to make sure it's as strong in Europe as it is in the U.S. Those are going to continue. With that said, given everything going on, and we're very happy with our Italian business right now, we're fast approaching 10 stores, we're being a little more careful. It's kind of a double-edged sword, I guess, I would position it as. We've got to be careful of the number of new stores we're opening up in Italy, in particular, rolling and opening up one store this month -- sorry, early next month in Paris, a Banana Republic. Maybe that will lead to a couple more stores down the road. But I think that's an overall more of a cautionary tone for us when it comes to our bricks-and-mortar business in the European market. So I think that Italy is doing well, and we'll add a few more, definitely more stores in 2012. We're being little more cautious. Banana Republic, I hope, gets off to a great start in Paris. So we'll watch that carefully to see if that drives us to any more stores, but we are watching it carefully. And our value business, I think, is full steam ahead because that makes absolute sense. The great side about this is given the current state, there's a strong chance that rents may come down. So we may have to be opportunistic. We'll be careful. If we can get the right store in the right market, and we notice that rents come down as a percentage of what we thought they would have been 12 months ago, that would be good news. Now we're much more focused on being cautious about the consumer than we are about being optimistic on rent, but that could be one of the outcome that comes up similar to here in the U.S. 3 years ago, where we were presented with opportunities we never would've had in 2007. We were presented with opportunities in 2008, 2009 given the recessionary times we live through here.

Your next question is from Lorraine Hutchinson from Bank of America.

Sabrina, I just wanted to ask about SG&A. Dollars went down in the third quarter and that continues to be, I think, somewhat surprising given all the dramatic cost cuts over the past 2 years. Can you talk a little bit about what you've been able to cut and then, perhaps, what's left to cut if sales don't come in, in line with expectations for the next few quarters?

Yes, I'm glad you asked that question, Lorraine. We're really pleased with how we managed the expenses with great discipline again in the third quarter. I definitely would caution against extrapolating that trend forward into Q4. Just underscoring your point, we definitely want to be careful in our most important, biggest quarter, that we're not cutting into areas like marketing and payroll. And you know that our SG&A can vary quarter-to-quarter. So although the result was terrific in terms of leverage on a negative 5 comp in the third quarter, just as a reminder in Q1, we only had a negative 3 comp, and we actually didn't leverage. Expenses were flat as the percent of sales. So it can definitely vary quarter to quarter. You can count on us to continue to be disciplined, but I wouldn't extrapolate that strong of a trend forward, or I would caution against that.

And your next question is from Barbara Wyckoff with Credit Agricole. Barbara Wyckoff - Credit Agricole Securities (USA) Inc., Research Division: Can you talk about the learnings of the Active categories in denim and accessories in Gap Women's? how important were they were during the fall season? And what could've been done in these categories better to drive sales? And then given the price action in the mall and the mid-market, how aggressive is Gap prepared to get during the holiday season?

Well, on the 2 categories you highlight on Gap, on the Active business, we've actually been pleased. It's in 100 stores now, and I believe we're on our way to put it into another 100 stores early next year. That's the relaunch -- sorry, not relaunch, the actual launch of the GapBodyFit. And that's a sub-brand that is working well, and bottoms in particular. I would say my -- the opportunity for them and one of my concerns is that the pant launched well, no different than when 1969 denim was down, we didn't follow it up with all the other components that she was looking for. But it's a good business. I think we have a great price point of $49.50, which is relative to where some of the market leaders are, that would be about 50% of their price point. I think the stores have done a great job displaying it. The market has been very strong. Now like all great retailers who launch new categories, how do you follow that up? What are the other categories? How do we create in the 200 stores we will have some time in 2012, how do we create a business that is much more grounded than simply in a great pant with a great fit with great fabric? So fit is something that Gap brands talk about a lot, from its denim to its black pants relaunch to now the GapBodyFit. So I think that is something that they can clearly get known for and should be reemphasizing in marketing, but they need to add more categories around it. Accessories, I was sure, if Mark Breitbard or Pam Wallack were on the phone right now they would say, we have a long way to go in accessories. That's not anything…

Gap is in the malls. They have seen throughout this year how a lot of their either direct competitors or indirect competitors -- by that, I mean, some of the department stores, and the level of aggressiveness they've had. What I said at the beginning and it applies to all our businesses, I mean, we're prepared to compete in the fourth quarter, and we have to. Last year, I would say, Gap was quite aggressive in November. And we know we're putting our plans, and our plans are put together now, there's always a little adjustments you can make. But what I encourage the team to do is not look at any given day or any given month, that the fourth quarter is made up especially of November and December, and to make sure we don't try to actually go out there in any given short period of time like in the morning of Black Friday and try to win in that 4-hour period. Gap is a different brand. That's not how they compete. So we have to make sure they're offering great value but try to make sure they look at it a little more midterm and across the overall 8-week period. Gap is much more of a brand that consumers respond to more strongly in the last week of December when people are in the mall looking for last-minute gifts. It's a brand, it's recognized, it's comfortable. So trying to learn some lessons last year where those are maybe better times to make sure that our value proposition is more than competitive is probably a better strategy than trying to win on one given day.

Your next question is from Janet Kloppenburg with JJK Research.

Glenn and Sabrina, Glenn first. I'd just like to make sure that as we listen to what you're saying about Old Navy and its pricing that there'll be some directive for the brand's pricing as we go into the spring to reflect some of the problems that you're talking about. So if you could talk about that for a second, that would be great. And Sabrina, I appreciate what you're saying about expense management, but I just wanted to make sure that if top line continued to be compressed that you would be able to adjust your infrastructure costs in line with that.

Yes, I'll start with the second one, Janet. So just to be clear, I think we've demonstrated, gosh, for many, many, many consecutive quarters now, our commitment to expense discipline.

You've been terrific at it, really. Fantastic.

Yes, that's not going to change. I'm just saying, I would caution against relationships of being able to leverage 40 basis points on a minus 5 comp. You can absolutely count on us to continue to do our best and flex all of our levers within our expense management to make sure that we stay just as disciplined as we have quarter in, quarter out, year in, year out.

Given the step up in sales, Sabrina, in the fourth quarter versus the third quarter, you would think there would be some leverage opportunity, no?

We'll continue to say, Janet, if we positive comp, we always feel confident we can leverage both rod and expenses. If we don't positive comp, it becomes much more difficult to pull off.

And on the assortment, just going back to one thing I said, I think Old Navy, when they had to make their decisions on pricing -- let's all admit, it's been a unique time in terms of the cost increases that we've lived with. As I referenced earlier, a 20% -- increase of 20% on the AUC in the second half for Gap Inc. driven by our value businesses that were a large part of the contributing factor for that 20% increase, Old Navy has had fairly sizable increases in the third and fourth quarters. So when you have a slight shift, I want to keep emphasizing a slight shift, in the assortment strategy, and then you have all these increases in AUC, they've had to make a lot of decisions that, in fairness, might be a little foreign to them. It's the first time that probably anybody inside that business has lived through their cost of goods from year-over-year going up at 20% at a minimum inside of a business. So they've had to make choices. I think they made a lot of good choices, as the denim example I gave earlier. In some cases, the combination of a slight shift in assortment and a significant increase in AUC, your customer will give you the response, and what good retailers do is to make those adjustments. We have the ability, certainly, in spring to make any retail adjustment we choose to make if it's appropriate. The assortment is the assortment. That's done, it's bought. It's on the water or it's coming into our DC in the next 30 days. But any pricing adjustments are definitely easy for us to make as we learned lessons from October, and we'll learn more lessons from November, December.

Your next question is from Jennifer Davis from Lazard Capital Markets.

I was wondering if you guys could talk a little bit about -- well, you've talked about Jennie at Old Navy. So I was wondering if you could talk about your target Gap Women's customer, like who she is, what does she want from Gap? And if you've done any focus groups, what she thinks she likes, what she doesn't like and what she wants from Gap?

Well, probably Tom and his team talk about their customer more than any of our brands. I wouldn't say that's because they know it any better, but it's a large part of the personality of Old Navy and how Old Navy can compete in a value business without having to necessarily just be the lowest or finding a way to make sure they have very strong, aggressive pricing, but also bring the personality of Old Navy alive, as you referenced, for Jenny, because that's how she responds very well, whether that's store environment, whether that's the type of marketing we put forward, whether that's unique categories you put into the store, whether that's the type of people we hire. So I think that, that gets a lot of airtime, as it should, because Tom is in the value business, and you can't strictly compete on price. Some people can, but long term, Old Navy's multiple personalities are critical for its success. At Gap and Banana Republic, both Art Peck, Stephen Sunnucks internationally, Jack Calhoun, have all done the same work. Who's their customer? Exactly what do they believe in? What is our positioning with them? So when it comes to Gap, the number one thing that we are working on to make sure that customers see, one is this is a customer that has multiple opportunities. We don't have any other business like this where you really are going after customer who's about Kids and Baby. And even inside the Kids and Baby, you would get somebody who comes in for the gift aspect of Baby. So you have a very broad customer base, and that's why it's always dangerous when you talk about Gap. And I know we've done it to make sure that our design teams are focused…

Your next question is from Christine Chen with Needham & Co. Christine Chen - Needham & Company, LLC, Research Division: Glen, maybe you could share with us, sort of your philosophy on how you want to use promotions. We've seen you go back and forth between the broad-based promotions, where the entire stores is a certain percentage off versus targeted categories. And I'm just wondering, what do you find more effective, and is the goal really to drive traffic or is the goal to kind of leave the customer wanting more and maybe trying to drive full price selling in the better -- better categories? And I'm sure it differs by brand.

That's a big question that I don't have time for a fulsome answer, but I will say to you that I don't think we've necessarily changed. I think there's nothing wrong -- and I'm not trying to be defensive here, I'm just trying to give an explanation -- that in no time, certainly I've been doing this for 25 years, in no time has the environment been as erratic and volatile as it's been. And that's caused retailers, including us, to make sure you're make adjustments in how you present. What's your voice of your brand? So I always go to, what's -- ultimately, what's your value proposition? Secondly, what's your brand positioning? And then what's the brand platform you're going to use to go and tell to the consumer why come in to GAAP, Old Navy, Banana Republic? Either you're telling them externality or when they're inside the mall, what are you telling them that this is the day they need to come in? If you were to rank them, because you mentioned it, no question, one of the strongest reasons that you do promotional activity, which I'll talk to you in a second, is not only about that discounting as a percentage of, but one of the number one reasons you send a message in your window, you send an email, you run something in the magazine, you use television, is to get people inside your store. Now there's a brand enhancement component to that. But you'll see at Old Navy, when we try to talk about the brand a little bit more in the first 3 quarters of this year, we still mentioned value, but it was a brand message first and a product message second. And the value part of the Old Navy communication, in the…

Your next question is from Erika Maschmeyer with Robert W. Baird. Erika K. Maschmeyer - Robert W. Baird & Co. Incorporated, Research Division: Could you talk about your thinking around your additional store closures, what the catalyst was there? And can you give us any sense of the characteristics of the 150 stores that you're closing this year versus the rest of the base in terms of productivity or profitability, and how many of these closures are consolidations versus just pure closures? And then, also, how are you thinking about Old Navy remodels for next year?

That's a whole host of questions, and I can probably pull a bunch of detail and take you through that offline. But I'll tell you at a high level, the additional -- because the only real news here, right, is that we're closing 25 more stores, and that's principally Gap specialty stores. And that really is all under the same strategic umbrella we have laid out. So it's just that we've accelerated the timing opportunistically given some of the discussions with our landlord. We have a lot of short term keepers. I think, at Analyst Day in October, I got the opportunity to speak to some of you one-on-one. To talk about the path to the 700 Gap specialty stores is made up of quite a few stores that we've had on our list of underperforming stores, which doesn't mean that they're losing money, by the way, on a four-wall basis. It's just means that the contribution is very, very low and the return's low. But many of those we've kept short term because our landlord have wished us to stay a little bit longer, and we've negotiated some good rents in the short term. So it's really that group of short term keepers that we just had opportunity to say, quite frankly, it's not worth continuing to put the payroll and energy and resource into those stores to just keep them open 5, 6 more months whatever. So it's just timing, really. So there's no big news around the closures.

And on the Old Navy remodels, we don't have the final number just yet. We've been averaging, give or take, 100 stores a year. A lot of what we've done -- and they'll finish this year around 375 stores under their new prototype. A lot of what we've done have been reductions in space, which everybody knows we've had a goal since the new management team has been in place to not only close stores, but dramatically reduce the square footage we have. So we're pleased with it. It's going well. I think as I said earlier to a question that came up, it really helps define the personality of what Old Navy stands for, and when you go to that store it's unique, against people that compete on directly, who their goal is to go out there and compete and steal market share. I think it's a unique store experience. So we'll do more next year. Probably less and less of these reductions in space, there's still going to be some, probably be less over time. So -- and we've always said, day one, there's never been an intention that the whole fleet is going to get done. That's 1,000 stores. We don't see the need to put the new look into 1,000 stores. So we'll see how our real estate team does and how it plays out. We have the capital available to do another range of stores -- another tranche, I mean. And how big? We'll know in the next 2 to 3 months.

Your next question is from Evren Kopelman with Wells Fargo.

My question is on inventory strategy as you look out given your comp trends have been soft, but you're optimistic about some of your initiatives into the spring season. How should we think about your inventory strategy for the next season?

Well, Evren, we only do that one quarter at a time, so we'll give you a lot more color on our Q4 call about 2012. We've told you that we expect to end the fourth quarter similar to the third quarter, basically. But overall, philosophically, what we want to do is never, like, get too far ahead of demand in terms of inventory. And that's why we put a lot of focus on our fast pipeline and enhancing our ability to chase. And really, that's the vehicle that is momentum gained because, you're right, we do feel like as we move into 2012, our assortments are improving. And as that momentum improves, we're going to initially buy fairly tightly as we have been buying this year and then use that ability to chase and use our fast pipeline to increase the inventory.

And your final question is from Kimberly Greenberger with Morgan Stanley.

I'm wondering if you can comment about the direct sales growth. You indicated Gap, old Navy and Banana were all been positive. Has that been consistent all year or was there a change in trend? And lastly, on your balance sheet, you're showing now about $240 million of net debt, cash net of debt. It's the first time we've seen that since Q1 of '03, and I'm wondering if you can just talk about how you think about the leverage on your balance sheet and what level strikes you as comfortable?

Well, I'll start with the second part, Kimberly. So we are very comfortable with our capital structure. We raised some debt for the first time in a very long time in the spring opportunistically. For a company of our size, $1.650 billion, which is our total debt level, is not -- does not feel at all imprudent to us. In our history, we've carried much more leverage than that. What we have continued to say is from a cash perspective, we want to continue to be conservative with our balance sheet. We want to continue to hold on cash on our balance sheet. $1.2 billion is our cash target. And we're comfortable that that's plenty to fund all of our working capital needs. As you know, most of our debt, 1250 of the debt is in a 10-year bond, so it's very long term money. And then we have that smaller tranche of $400 million, which is a short term piece or a shorter term piece, it's term loan, of which, only $40 million is due every year. So we're very comfortable with our capital structure, and we think the leverage we took out actually helped optimize our weighted average cost of capital.

And on the online, we don't -- as you know, we don't give out information, disclose that. What I can say is it would be very rare on any given month or quarter for one of our brands to make negative comp online. I mean, the online business is growing somewhere dependent on the year, growing between high-single digits to low-double digits. And that's how the Apparel Online business is growing at that level. So one thing we've been very pleased with -- I was, obviously, throwing a compliment to our team at the online lead by Toby Lenk, and he certainly deserved the complement, I think I've said a number of times on these calls and at meetings is that they've been a perennial market share gainer in the whole time I've been there. And again, take out and given month, but on a year-in-year-out basis, relative to the growth of e-commerce in apparel, they've been a market share gainer, and we feel very good about that. The challenge for them is that the best -- the way for them to maximize their growth and their sales is for our brands to have great product, be healthy. And the healthier our brands are in the physical manifestation of the brand, the better we do e-commerce. So I was trying to say earlier, a 21% total growth for online business in a quarter in which we're quite disappointed in our sales in bricks and mortar, I was impressed with.

I'd like to thank everyone for joining the call today. And as a reminder, our earnings press release, which is available on gapinc.com, contains a full recap of our Q3 results, as well as the forward-looking guidance included in Sabrina's remarks. And as always, the Investor Relations team will be available after the call for further questions. Thank you.

Thank you. This does conclude today's conference call. You may now disconnect.