Marketing, will depend on the success of these campaigns how much we want to continue to invest. And we will try and be helpful each quarter directionally about where our head is and how we have evaluated that spend.

With the non-marketing and non-store, we will manage that tightly and down.

Stacy Peck (Espy Research): Why are you pleased with the Gap brand because the comps there have been just about as bad as Old Navy and Banana?

Glenn Murphy: We have been looking at our business on a number of different dimensions. One, we looked to Canada, where the economy is nowhere near as challenged as it is here in the U.S., but the product is identical. This is not the only measurement of how we are measuring our business.

From a comp perspective, we look at our business and we have a ways to go. We are looking at it from a total product and how it is on brand and where we see the momentum building with the team that is in place.

But when we go to Canada and look at a market that has not been as severely affected, we are actually very impressed, comparatively speaking, to the U.S. about how that business is doing and how that product is resonating.


Stacy Peck (Espy Research): How confident do you feel it is really going to reinvigorate the brand?

Glenn Murphy: The best brand in the world has more work to do. But we have a very good foundation that is established and the fact is that the team has been there for two years. And then you have these other metrics I referred to that we look at.

The agency we used, which is Crispin, did some very strong testing. It resonated very well. It is one data point. When the campaign hits we continue to get the messaging out, using this marketing vehicle to talk about what makes Old Navy special fun, fashion and family.

Janet Kloppenburg (JJK Research): Are you comfortable with your inventory in relation with your sales or top line?



Sabrina Simmons: We are very comfortable with our inventory. Inventory is obviously a very key lever in our business.

We anchor our buys on our current traffic because we view that as a proxy for customer demand. And more or less that has served us well.

The other really important metric that we monitor when we think of our inventory buys are obviously our inventory turn. So, we would want to either buy up would be that our turns were speeding up a lot or signs that we are buying too much ahead of demand would be our turns slowing down.

So at this point we feel really comfortable because turns are holding fairly steady.

The other important metric is cost sales at reg because we definitely want to walk that tightrope where we are giving our customers an opportunity, especially in a recessionary environment, to buy value oriented, to offer promos, but we do not want to start to deteriorate too much our cost sales at reg.

We watch markdown margins because if we are carrying too much inventory that is where we have seen historically that your margins really get whacked. And our markdown margins were actually one of the levers that really enabled us to deliver these healthy merchandise margins, so we are comfortable.

Janet Kloppenburg (JJK Research): What do you mean by that, that the margin you made on markdown was a healthy one therefore it is not so bad to have some markdowns around?

Sabrina Simmons: Well, certainly in retail it is not bad to have some markdowns around. What is important is that we balance our cost sales at reg, which we also want to be healthy.

We want to do a healthy amount at regular price, but when we do go to markdown we want to make sure our markdown margins are healthy.