Mike Jeffries: About six months ago we put a new design team, new planning team, essentially a new team into the RUEHL business. I believe that we’re starting to see the result of that effort. We are pushing better fashion; better quality and those of you who have been in those stores have been commenting to me that you see the difference. We see the difference. We think that we will continue to see progress there.
Lorraine Maikis-Hutchison (Merrill Lynch): I wanted to get a little more clarity on how you’re planning inventory for ’09 or at least for the first half and when you expect to be able to get your orders back in line with sales trends?
Mike Jeffries: Currently the ending inventory for beginning of February inventory was up 2% last year. That is broken down between basics and seasonal inventory. Our seasonal inventory as of February BOM was very close to being in line with sales trends, almost there. What was greater than sales trend was the basic component of the inventory. That includes polo’s, jeans, and non-risk items.
We believe that we will have the basic inventory very much in line with sales trends sometime during the first half. Clearly our seasonal inventory levels are close to where they should be at this point and certainly would be in the first half.
Randy Konik (Jefferies): Can we get the clarification on all the store openings globally for 2009? Can you give an update as we exited the quarter as we’re starting to go through spring are we still in a nightmare, are we still in a catastrophe from a volatility perspective, are you seeing as much volatility as you had seen during the holiday?
Mike Jeffries: I said it was a catastrophe for the industry. This company guided itself in a remarkably disciplined season controlled way in an environment that was catastrophic for other retailers. We protected the brands during this environment. I don’t see the environment changing over the next year and we’re looking at the environment as if it is going to stay this way and managing the business with the priorities that we’ve established during this chaotic time.
I’m not saying that we’re in any state of chaos. We are protecting the brands, we’re preserving cash and we’re pushing international growth in a seasoned, disciplined and controlled way.
Jonathan Ramsden: Domestically we have 10 stores which we are committed to open in 2009. That’s the Hollister flagship in SoHo. We have two Abercrombie Kids stores, four Hollister stores, two Gilly Hicks stores and one outlet store. Internationally we have firm commitments to open two additional Hollister’s in the UK in addition to the three that we’ve already opened in 2008 and one Canadian Abercrombie Kids store.
What we’re saying is that there are potentially, our best guess at the moment is that an additional 10 Hollister stores in Europe that we think will likely to open in 2009. On top of that we have the Abercrombie and Kids flagships in Milan and Tokyo flagship which we expect to open in 2009.
Kimberly Greenberger (Citigroup): Clarify your comment on inventory either at the end of first quarter or through the first half. When you say you’re expecting inventory to be in line with sales decline are you talking total inventory, total sales or inventory per square foot to comp store sales. Secondarily, what tax rate are you expecting in 2009?
Brian Logan: With the inventory we’re referring to the inventory levels at cost at a gross square foot level. We’re comparing that to some comp sales metric. Obviously we have a plan in place to reduce our inventory levels; it’s a priority in the first quarter. The success that we’ll achieve in the first quarter will largely be dependent on the sales levels. It is something that is a priority as a company.
As far as the tax rate, that’s going to be largely dependent as well on what our earnings end up being during the year because there are permanent and discrete items that affect the tax rate. As earnings move up or down those pieces have a bigger or smaller impact on the tax rate. Directionally we’re thinking that the rate will be higher than 2008 but we don’t have an exact rate at this time.
Jonathan Ramsden: Excluding the one time item that significantly increased the rate this year.
Michele Tan (Goldman Sachs): On the basic inventory and getting that in line, is that more of a function of taking and substantially lower receipts on basics through the first half of the year or is it more aggressive in terms of efforts to clear some of those goods?
Mike Jeffries: There is some mark down activity there but it’s related to colors and washes that are being discontinued. The answer is that it’s coming into line primarily through lower receipts.
Jeff Black (Barclays Capital): On Europe can we get a performance update? How are sales looking year over year there or relative to the change if anything to give us an indication of how things are going numbers wise? Does the slowdown indicate that you have some reservations building about Europe in general or the strategy in general?
Jonathan Ramsden: The comps in the UK are stronger than the US and stronger than Fifth Avenue at this point. The three Hollister stores in the UK have opened extremely strong. There has been nothing that hasn’t given us every reason to believe that we’re going to have a very successful continued roll out in Europe. We feel extremely positive and confident about that.
The question is more one of we want to make sure we do the right deals, we want to proceed at a pace that we’re comfortable with but there is nothing that has happened so far that has in any way led us question that. In fact, the opposite, it’s certainly reinforced our belief that there’s a huge opportunity. The contribution margins from those incremental stores are also very significant.
Mike Jeffries: What has happened in the UK over the last quarter is very significant to this company. We’re cautious people; this brand is as a mall entry being proven in a huge way and totally opens the way for international expansion beyond the UK.
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