Betty Chen - Wedbush Morgan

Best of luck.

Operator

Your next question comes from the line of Kimberly Greenberger, Citigroup.

Kimberly Greenberger – Citigroup

Great. Thank you. Good morning. Kay, I think I heard Mike say that maybe marketing expense would be up in the second half of the year, can you just talk to us about how you’re going to get the message out on the assortment improvement that you’re seeing for both brands going into the second half of the year and then, I just had an inventory follow-up question for Mike. Can we assume that the differential between the total inventory per square foot decline at negative 16% and then the two divisions, Ann Taylor down 28% and LOFT down 16%, the differential to get us to that total number would come in the factory channel?

Michael J. Nicholson

Okay Kimberly, I’ll take the first part of your question regarding marketing just to provide some clarity. What I said was I anticipate that our marketing expense in the second quarter will be up slightly as compared to the first quarter as we invest in the back half of the second quarter to support the brands as we move into the third quarter and the fall season.

I’ll also take your inventory question and then just pass it off to Kay. In terms of, like I said at the total company level, inventory was down 16%. Total inventory at Ann down 28% and LOFT down 16% and I did want to take this opportunity to just provide some perspective as it relates to both divisions under the covers and the composition of the inventory and Ann’s down 28%, when I look at it in terms of carryover or carry in to Q2, Ann Taylor’s carryover inventory which I defined as April store set and prior is down more than 30% and at LOFT their April store set and prior carryover is down 40%.

The factory channel ended the quarter with inventory essentially flat to last year on a dollars per square foot basis and we fully expect to have factory inventory levels back in line with the trend of the top line as well as all divisions by the end of the second quarter.

Kay L. Krill

And Kimberly, I just want to pipe in on the marketing for the fall season, without getting into any specificity for competitive reasons, so I’m not going to go there, we’re definitely going to have a combination of some pretty robust PR, media, and direct as well as using our Internet channel to really get the message out. So, I think it’s a pretty good plan from a comprehensive perspective but obviously you can understand I don’t want to get out there with specifics.

Kimberly Greenberger – Citigroup

Understood. Thanks, Kay.

Operator

Your next question comes from the line of Laura Champine, Cowen & Company.

Laura Champine - Cowen & Company

Good morning. We were particularly impressed with your gross margin performance given the level of markdowns that we saw visibly in the stores, and then to hear that your AUR was down too on mix. Can you quantify and I appreciate what you said about sourcing, but can you quantify the reductions in product costs you’re seeing or is there anything else that’s particularly driving gross margin expansion in the face of such weak top line?

Michael J. Nicholson

What I would say is I’m not in a position to specifically quantify for you in dollar terms the impact on the cost reduction activities to gross margin in the first quarter. What I would say is that the overall improvement in the rate and our rate performance has more to do with our overall level of inventory starting with our carry in position from Q4 as well as a very conservative receipt plan, as well as the mix of business between full price and non-full price for the quarter.