Allison Malkin – Integrated Corporate Relations Lyn P. Kirby – President, Chief Executive Officer & Director Gregg R. Bodnar – Chief Financial Officer & Assistant Corporate Secretary

Lauren Levitan – Cowen and Company, LLC Evren Kopelman - JP Morgan Chase and Company Lyn Walther – Wachovia Capital Markets, LLC Neely Tamminga - Piper Jaffray Lizabeth Dunn – Thomas Weisel Partners Daniel Hofkin - William Blair & Company, L.L.C. [Gary Giblin] - Goldsmith and Harris

Greetings and welcome to the Ulta Salon Cosmetics & Fragrance Incorporated fourth quarter and fiscal year 2007 results conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Allison Malkin of Integrated Corporate Relations. Thank you Ms. Malkin, you may begin.

Good afternoon. Before we get started I’d like to remind you of the company’s Safe Harbor language which I’m sure you’re all familiar with. The statements contained in this conference call which are not historical facts may be deemed to constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual future results might differ materially from those projected in such statements due to a number of risks and uncertainties all of which are described in the company’s filings with the SEC. With respect to each reference we make on this call to adjusted net income per diluted share as a result of the IPO, reconciliation of net income per share on a GAAP basis to adjusted net income per share has been provided in exhibit three of our earnings release which is also available on our website and has been filed with the SEC on Form 8K. Now, I’d like to turn the call over to Ulta’s President and CEO Lyn Kirby. Lyn P. Kirby: Good afternoon everyone. Thank you for joining us to discuss the company’s fourth quarter and fiscal 2007 results. On the call with me today is our Chief Financial Officer Gregg Bodnar and following my opening remarks Gregg will review our financial highlights and then I will provide closing comments and turn the call over to the operator so we can answer the questions you have for us today. As you all know this was an incredibly challenging retail quarter with 2008 looking to be even more challenging given the state of the global economy and the general economic slowdown. We are seeing that virtually no segment of the economy is immune from what is happening and even the strongest of retailers are being impacted. Although, the Federal Reserve action yesterday hopefully will provide some momentum for consumer spending. Despite this, our focused execution in merchandising, marketing and store operations along with the resiliency of the beauty category enabled us to deliver fourth quarter sales and earnings in line with our expectations. I am very proud of the efforts of our associates who helped to generate our positive fourth quarter performance. As some of you might have heard me say before, women get up in the morning, they shampoo and style their hair and they put on their makeup. This makes beauty products a repeat purchase that is more resilient than the fashion business. However, this resiliency is most challenged in the holiday season when we compete with all retails for all gift spending. So, during the quarter, as we said we would, we flexed our marketing muscle and emphasized our value proposition which we believe resulted in market share gain. So, very briefly touching on the numbers, for the fourth quarter we delivered a 23.4% increase in sales on a comparable 13 week basis. We increased our comps stores sales by 4.5% and we grew operating income by 47% to $23.9 million. We were equally pleased with our annual results. For the fiscal 2007 year, net sales rose 23.5% on a comparable 52 week basis to $912.1 million. Comparable store sales rose 6.4% and operating income increased 16% to $46.7 million. The fourth quarter marked our 32nd consecutive quarter of comparable store sales growth and was driven by increases in both customer traffic and average ticket. At the beginning of the year we knew from the calendar that the difference between Thanksgiving and Christmas would result in an additional full shopping weekend. A once every seven year occurrence that, as you know, retail describes as a late Christmas. So, we planned investment in a bigger and better holiday gift with purchase for the two weeks before Christmas that was favorably received and drove traffic into our stores. In addition, at the beginning of fourth quarter when we realized the retail holiday season would be more challenging than expected, we made the decision to add a newspaper insert three days prior to Christmas to ensure Ulta’s value message was top of mind for last minute shoppers. Finally, we expanded our mailing list to our customer club members inviting more customers to shop with us. I am delighted with our comp sale performance of 4.5% as it follows a 15.7% comp store sales gain last year. Both this year’s results and the two year performance compares extremely favorably to other retailers. In addition, as we had mentioned in our last conference call we focused on achieving the appropriate balance between sales and margins and are pleased with the outcome. Lastly, we were pleased with the improvement in operating income in the quarter which reflects the solid increase in sales and leverage in SG&A. Turning now to the full year, we also achieved several note worthy accomplishments. We completed a record number of new store openings and remodels during the year. I continue to be pleased with the results of our new stores our 2007 class delivered to our new store model. We opened 53 new stores and the class was well balanced with 20 stores opened in major metro markets, 17 in medium sized markets and 16 in smaller markets. We added 23 new markets and ended the year operating 249 stores in 31 states. In addition, we completed 17 remodels during the year. Now, speaking of 2008, our plans include 63 new stores and eight remodels. Based on a better than expected performance in our smaller market stores, we have modestly increased the proportion of openings for smaller market stores this year. Despite the economic environment, we continue to be confident in our store opening schedule. All of our leases for 2008 have been signed and 60% of the 2009 pipeline has been approved which is a great place to be at this point. As we finalize 2009 we continue to focus on careful selection of sites, aggressively negotiating terms and ensuring the commitments from co-tenants. For the first quarter we have opened 12 new stores to date and we are pleased with their results. Throughout the year we continue to drive growth through our merchandising strategies. The Prestige category generated double digit comp growth and continues to drive average order. In addition, we have continued to flow fresh new products into our stores. During the year we introduced new brands such as Dermalogica, Juicy Fragrance, Frederic Fekkai, Nick Chavez and Brookstone giftables. In addition, we launched two private label brands one in professional makeup tools and the second in sun care. For the first half of 2008 we are introducing Lorac which is a Prestige brand from QVC and Stila which was rolled out just prior to year end. For fiscal 2008 we are on track with our goal of one new brand test and one launch every six months. We will also continue to expand our private label category in first quarter with a hair care line and additional bath line and expansion of the Ulta Professionals line. I am pleased with the ongoing development of our [inaudible] strategies which are generating strong comp store sales growth. This growth underscores our continued focus, dedication and commitment to this business as a core component of our competitive advantage. Regarding our website, we launched our second generation ecommerce site in the fourth quarter. Ulta.com is meeting our expectations and we are pleased with the improved features, functionality, efficiency and look of the site. We are now focused on maximizing Ulta.com and are currently testing a new marketing campaign to attract new customers. In February we launched our first microsite on Ultra.com for Bare Essentials and have seen a positive response. Going forward, we will continue to build microsites for other Prestige brands. As we begin fiscal 2008, we recognize that the environment remains challenging yet we believe our strategies have us well positioned. Currently, we are focused on continuing our successful strategies of 2007. To this end, we plan to open 63 new stores, continue our track record of positive quarterly comp store sales growth and continue to expand our Prestige offerings. In addition, our second distribution center is on track to open in April this year. We also believe the environment will remain challenging for the remainder of the year. We have planned our sales, expenses and earnings prudently and fully expect to deliver this year. In summary, we expect fiscal 2008 to represent another year of significant accomplishments for Ulta. With that I’d like to turn the call over to Gregg to review our financial highlights in some more detail. Gregg R. Bodnar: For the fourth quarter double digit sales growth and leverage in SG&A more than offset higher pre-opening expense and fueled a 41% increase in fourth quarter net income. Now, I’d like to review the income statement beginning with sales. For the fourth quarter net sales increased 15.9% to $309.3 million from $267 million last year. Excluding the 53rd week last year net sales increased 23.4%. Sales growth was driven by 4.5% increase in comparable store sales which follows a 15.7% comparable store sales gain last year resulting in a two year comparable store sales gain of 20.2% on a realigned calendar basis. Our comparable store sales growth was fueled by higher average ticket driven by the expansion of our Prestige category as well as growth in consumer traffic in a very challenging holiday environment. We attribute this increase in customer traffic to the success of our fourth quarter marketing strategy. Non-comp sales during the quarter contributed $55 million to total sales and as Lyn mentioned, we opened 12 new stores in the fourth quarter which included one opening at the end of January which was in line with our plan. Gross profit for the quarter was $97 million or 31.4% of net sales as compared to $84.3 million or 31.6% of net sales last year. Gross margin declined by 20 basis points due to a slight increase in distribution costs with our DC operating and capacity. We had slightly higher promotional activity in January which resulted in a slightly lower gross margin rate but drove favorable customer traffic. As you know and as Lyn mentioned, we are opening a second distribution center in April this year which we expect will be more efficient to accommodate our shipping needs for holiday of 2008. SG&A expenses were $70.4 million or 22.8% of net sales compared to $66.3 million or 24.8% of net sales in the prior year. Last year’s fourth quarter included a $2.8 million one-time stock compensation charge. Excluding this cost from last year SG&A as a percentage of sales improved by 100 basis points which was driven by our ability to leverage our cost structure on higher sales despite this increase in marketing expense to drive traffic in a very challenging holiday period. Pre-opening expenses were $2.7 million or .9% of net sales compared to $1.8 million or .7% of net sales reflecting the opening of 12 new stores and three remodels during the quarter as compared to nine new stores and no remodels in the fourth quarter last year. As a result, operating income increased 47.1% to $23.9 million or 7.7% of net sales from $16.3 million or 6.1% of net sales in the prior year. Interest expense totaled $1.1 million as compared to $.8 million last year. This reflects a $26 million increase in average debt as compared to last year driven primarily by new store investments. The effective tax rate for the quarter was 40.5% as compared to 37.4% in the prior year. The increase in the effective tax rate largely reflects a one-time reduction in the prior year rate representing the recognition of state tax benefit of our net operating loss carry forwards. The resulting net income was $13.6 million as compared to $9.7 million last year representing an increase of 40.8%. On an adjusted basis, excluding the impact of the company’s preferred dividends in 2006 and adjusting for the additional shares for the IPO in October 2007, income per diluted share for the fourth quarter for fiscal 2007 was $0.23 as compared to $0.16 for the fourth quarter last year. For the full year, net sales rose 20.8% to $912.1 million with comparable store sales increasing 6.4%. This follows a 14.4% comparable store sales gain last year on a realigned calendar basis. The two year comparable stores sales increase was 20.8%. Excluding the impact of the 53rd week, net sales increased 23.5%. Operating income for the full year was $46.7 million as compared to $40.1 million last year which was driven primarily by the 20.8% increase in net sales. The increase in operating income this year includes the effect of a $2.8 million cost associated with our warehouse management software implementation and $4.7 million of additional new store pre-opening cost on our expanded new store program. Total square footage increased 28%. On an adjusted basis excluding the impact of our preferred dividends in 2006 and adjusting for the share count for the IPO, income per diluted share was $0.48 compared to $0.43 last year. Merchandise inventories at the end of the quarter increased 36.3% to $176.1 million compared $129.2 million last year. Of the $46.9 million total increase, approximately $40.9 million came from the additional 53 new stores opened this year and $6 million for the 14 new stores that are planned to open in the first quarter 2008. On a per store basis, average inventory increased approximately 3.6% which is consistent with our expectations. We are pleased with both the level and composition of our inventory as we begin the first quarter. In line with plan, we opened a total of 53 new stores in fiscal 2007 ending the year with 249 stores. Gross square footage increased 28% in fiscal 2007 to 2.6 million square feet from 2 million square feet at the end of the prior year. Capital expenditures totaled a $114 million and depreciation, amortization was $39.4 million in fiscal 2007. Regarding our outlook, we are introducing guidance for the first quarter and full year fiscal 2008 that reflects our current business trends and the current retail and economic environment. For the full year fiscal 2008 we estimate net sales in the range of $1,120,000 to $1,140,000 as compared to $912.1 million last year representing a growth rate of 24% at the midpoint of the range. This assumes comp store sales growth of 3 to 5%. Income per diluted share is forecasted in the range of $0.52 to $0.57 as compared to $0.48 in fiscal 2007. This represents a net income growth rate from the high to low of this range of 25 to 38%. For the first quarter of fiscal 2008 we estimate net sales in the range of $236 million to $241 million as compared to $194 million last year reflecting a growth rate of 23% at the midpoint of the range. This assumes comparable store sales growth in the range of 3 to 5%. Income per diluted share is forecasted in the range of $0.06 to $0.08. First quarter income per diluted share is being impacted by costs totaling $0.03 per share. These costs include approximately $0.02 per share for $2.3 million of additional pre-opening expense given the increase in new store activity in the first quarter and the beginning of the second quarter and a $0.01 per share or $1.1 million due to adjusted marketing calendar resulting in one more marketing vehicle which is expected to allow us to more effectively drive customer traffic with an earlier Easter this year. For the first quarter we plan to open approximately 14 stores. Our first quarter earnings guidance assumes an effective tax rate of approximately 40% and approximately 60 million shares outstanding. For the year our earnings guidance assumes an effective tax rate of approximately 40% and approximately 61 million shares outstanding. In fiscal 2008 we plan to open 63 new stores and remodel another eight locations. Gross square footage is projected to increase approximately 25% while capital expenditures are estimated at $115 to $120 million and depreciation and amortization is estimated at approximately $52 million for the full year. Our long term annual growth rate targets are unchanged and include comparable stores sales growth in the range of 3 to 5%, square footage growth in the range of 20 to 25% and net income growth of 25 to 30%. Now, I’d like to turn the call back over to Lyn. Lyn P. Kirby: In closing, we believe we are well positioned for success in fiscal 2008 and beyond. Our team is focused on delivering the year and maximizing our long term potential of 1,000 US locations over the next 10 years. With that, I would like to turn the call over to the operator to begin the Q&A portion of the call.

(Operator Instructions) Our first question comes from Lauren Levitan with Cowen and Company. Please proceed with your question. Lauren Levitan – Cowen and Company, LLC: Lyn and Gregg I’m wondering if you could give us a little bit color on some of the factors that you mentioned relative to the retail backdrop, maybe give us some sense of any differences you’re seeing by region or even by class. I mean you obviously have many younger stores rolling into the comp base that are helping to drive the comps, if you could give us some sense as to how the older stores are performing and then I’m also wondering if you could give us some sense of what you’re assuming about the type of promotional activity and level of promotional activity that will be required to drive the comp that you’re factoring into your Q1 in 08 guidance. Are you assuming that there’ll be incremental marketing events and greater emphasis on value that could pressure margins and increase costs? That would be helpful. Lyn P. Kirby: All right, Lauren, let’s see if we can break it down a little bit. Let me take the first one which is in terms of the regions of the country, again we continue to see some slowness California and Florida as we did last year but we are not seeing any other slow down outside of those trends that we already had in fourth quarter. Gregg, do you want to answer the question on comp stores by age? Gregg R. Bodnar: At the top end of the range, Lauren, when you get to some of the older stores like stores that are eight and nine years old, you will start to see those stores go into single digit to flat comps. So anything older than eight years we’re assuming in that 5% comp range that they’re flat to slightly positive. Lyn P. Kirby: And then, Lauren, the question on the amount of promotional activity, as Gregg mentioned we did put one additional event into the first quarter time period. It allowed us to move the calendar around to optimize the Easter timing this year and in terms of the rest of the year, again we are planning same promotional calendar as last year but as we always say, one of our competencies in strength is flexibility with this machine that we have and so we will flex it if we see a need to but right at this point in time we are not planning additional activities for the remainder of the year and the impact of the additional event in first quarter is fully contemplated into both the guidance for the quarter on the sales and the margin line of the business. Lauren Levitan – Cowen and Company, LLC: Last thing, with respect to the new stores, can you give us some update on their performance? I know in the third quarter call you talked about some trends that you were seeing in new stores and I know you said you refigured the mix of where those new stores will be in 08, but could you give us some update on how those are performing in the fourth quarter and into the first? Lyn P. Kirby: The stores that were in the early trade areas in the back end of third quarter emerged through the fourth quarter time period and are back on track with exactly where we would expect them to be relative to the model. The reason for it, just a little bit of color, is we went into the fourth quarter time period, our traditional marketing calendar and cadence during that period of time called for a much heavier newspaper insert scheduling and the new stores responded extremely well to that level of marketing activity. So it was not heavier than a prior year, it’s just the nature of what we do in fourth quarter. And, Lauren, I’m sorry the second part of your question one more time? Lauren Levitan – Cowen and Company, LLC: If you could give us an update on how the new stores are performing? It sounds like you’ve really given that already. Lyn P. Kirby: And, Lauren, just to answer that question, yes, we’re very happy with the openings this year. We’ve opened 12 and they’re right where we need them to be.

Our next question comes from Brian Tunick with JP Morgan Chase and Company. Please proceed with your question.

This is Evren Kopelman calling for Brian. I was wondering if you guys could talk about your store pre-opening expenses? This number came in a little higher than what we were expecting for the first quarter, so how should we think about it for the rest of the year? And then in addition, Lyn, you talked about this business model being very resilient, could you guys maybe talk about how has this business done in the previous difficult economic times? - JP Morgan Chase and Company: This is Evren Kopelman calling for Brian. I was wondering if you guys could talk about your store pre-opening expenses? This number came in a little higher than what we were expecting for the first quarter, so how should we think about it for the rest of the year? And then in addition, Lyn, you talked about this business model being very resilient, could you guys maybe talk about how has this business done in the previous difficult economic times? Gregg R. Bodnar: For the first quarter, we’re projecting that pre-opening costs will be about $4 million, that’s on the basis of 14 stores. The other most significant impact that you should be aware of is we have a little heavier opening schedule at the beginning of the second quarter so some of those second quarter pre-opening costs are flowing into the first quarter which is the reason why we’d be guiding you to a $4 million pre-opening for the first quarter. Lyn P. Kirby: And then on the second question in terms of how have we done in economic downturns, if you go back and take a look at the history, we were certainly in solid mid to 6% comp numbers during the 2001 – 2002 time period which I think was probably the closest to the economic scenario we’re in right now and hence the 3% to 5% I think we think this economic environment is a little more challenging than that time period and that’s reflected in the 3 to 5 versus what we did back in those other years.

And you guys mentioned you just recently rolled out Stila, how has that worked versus your expectations and any other new Prestige brands that we should expect in 08? - JP Morgan Chase and Company: And you guys mentioned you just recently rolled out Stila, how has that worked versus your expectations and any other new Prestige brands that we should expect in 08? Lyn P. Kirby: The first one, Stila, is absolutely meeting our expectations as is the second Prestige brand that I also mentioned Lorac is in its very early days, so that one we’re actually about to advertise for the first time in about two weeks but we’re also delighted with its performance even pre-advertising. So we have those two brands and relative to what we have coming, again we remain on track with the formula that I speak to which is that we’d like to have in any six month one brand in test and one brand rolling and we are on track with that formula for the back half of the year. We don’t want to comment on the brands that we have in test as much at their preference as ours. They don’t want to upset their distribution networks but we are on track.

Our next question comes from Lyn Walther with Wachovia. Please proceed with your question. Lyn Walther – Wachovia Capital Markets, LLC: Following up on the last question, given the difficult environment are you seeing any sort of trade down to maybe the masstige or any resistance to maybe the higher price point items that you have? Lyn P. Kirby: No, we’re not. We’re not a mix shift in the business. The biggest impact is versus a more robust economy is more on the customer traffic into the store. If we were in a more robust economy we would see higher traffic. Nonetheless our traffic is positive versus prior year. But the mix shift is not shifting. We are not seeing that down trade in the gain, I think it goes back to what we usually talk about which is that the category itself seems to satisfy her need for affordable indulgence and she’s not trading down to the personal preference in this category, she made trade off those shoes and the handbag, but within the category she does not appear to be trading down. Lyn Walther – Wachovia Capital Markets, LLC: And your new store opening plans for 2008, what new markets are you entering, what percentage is backfill and maybe just a little bit more on the single market stores that you’re opening? Gregg R. Bodnar: Lyn, on the single markets as we’ve mentioned a couple times we are doing a slightly modest shift, heavier emphasis in the single markets. It’s about five stores incremental to what we did in the 2007 program. We have about three new markets which we don’t disclose markets in front of opening them, but we have about three new markets in terms of state that we plan on opening in, in 2008. And then the flow of openings by quarter as I mentioned, 14 in the first quarter and then as you look at the rest of the year, one of the things that we talked about is we’re trying to balance our opening schedule throughout the course of the year versus how the stores flowed in 2007. So the fourth quarter as an example you’ll only see a couple stores opening versus the 12 we opened in 2007 and then the second and third quarter I would expect the rest of the program which should be about 48 stores to be balanced between those two quarters. That’s our objective. Lyn P. Kirby: And if I could just add first quarter we have opened one new market in first quarter which is Alabama and we are delighted with the performance of both stores in that market. Lyn Walther – Wachovia Capital Markets, LLC: And then just finally can you just maybe update us on current business? I know Valentine’s Day an important holiday for you in the fragrance business, just wondering how things progressed. Lyn P. Kirby: We are mid-quarter and so we’re not giving too much information on the quarter itself other than to state that the guidance is certainly predicated on the trends that we are experiencing in this quarter to date. But Valentine’s Day specifically, Valentine’s Day was actually a good performance. The fragrance business showed some nice response during the Valentine’s Day period compared to a little bit of the softness that we had seen during the holiday period. Gregg R. Bodnar: And we saw some nice success for the very innovative GWP, gift with purchase.

Our next question comes from Neely Tamminga with Piper Jaffray. Please proceed with your question. Neely Tamminga - Piper Jaffray: I have a couple questions, but just following up real quick on Lyn’s question, I think in the spirit of transparency, since you are this far through the quarter are you guys tracking at the low end of your comp guidance and hoping that it lifts with respect to upcoming holiday spring beauty floor set or are you tracking at the high end and you just want to build yourself a little bit of margin? And then I just have a couple follow ups. Lyn P. Kirby: Neely, we’re not going to get that specific in terms of where the performance of the quarter is at relative to guidance, but again I will repeat that the guidance is absolutely predicated on the current trends as they are performing. Gregg R. Bodnar: Neely, I would just say we believe this guidance is prudent and we believe this guidance is prudent given the visibility we have at this stage of the quarter. Neely Tamminga - Piper Jaffray: So just a couple follow up questions, in terms of the pre-opening I think historically, Gregg, over the last two years that we have the quarterly data Q2 pre-opening dollars do typically trend up relative to Q1, so are you suggesting with some of the early, early Q2 openings that the dollars from Q1 to Q2 could actually be flat in terms of pre-opening? Gregg R. Bodnar: Here’s the way it’ll flow, Neely. Q1 will be approximately $4 million and then Q2 and Q3 as we’ve tried to balance the program will be about comparable but slightly up about 10 to 20% up from the first quarter and then in the fourth quarter we also have some additional pre-opening costs, about $2 million that primarily relates to as we rebalance the quarterly flow we have more stores in the first quarter of 2009 so we will incur some additional pre-opening costs associated with those in the fourth quarter of 2008. Neely Tamminga - Piper Jaffray: So the guidance for the year is – Gregg R. Bodnar: About $16 million of total pre-openings costs, $4 million of which occurs in the first quarter and then we’re estimating we’ll spend about $2 million in the fourth quarter a large part of which is related to early 09 stores. And then the balance – Neely Tamminga - Piper Jaffray: Incremental two or two even? Gregg R. Bodnar: Two. Neely Tamminga - Piper Jaffray: Two total? Gregg R. Bodnar: Two total. Neely Tamminga - Piper Jaffray: And then in terms of when you’re talking about a test of a store or just a test of a brand, is that historically limited to a single store test or is that more you consider a test like a 30 door test? Lyn P. Kirby: It actually varies depending on the brand but the tests have ranged anywhere from 30 doors which was actually Stila, we have had some brands that want a very limited test down as low as one, but I’d say the norm is more like around six to 10 because it’s rarely a test of are we rolling forward with the brand, it is usually a test of what are the operational aspects of the brand, let’s make sure we’ve got the resale strategies right and let’s make sure we understand the inventory mix on the brand. Neely Tamminga - Piper Jaffray: And is there a generally good rule of thumb of when you guys are in test on a brand and then what time lapses before you start rolling it out to additional doors? Lyn P. Kirby: Historically it has been test for six and roll in the next six is what we have done up to this point in time. Neely Tamminga - Piper Jaffray: Is that kind of what you’re expecting for this year? The brand whatever you have in test right now is that the thing you would expect to roll out in the back half of this year? Lyn P. Kirby: Yes, we are certainly expecting at least one of the brands to be ready to roll out in the back half of the year. Neely Tamminga - Piper Jaffray: And then maybe could you guys just comment on Bruce’s departure, kind of what functions are going where and then more specifically other than we’re absorbing his functions and maybe explaining how if you’re going to add another 24 hours to Gregg’s day because he’s probably one of the busiest CFOs I know to begin with, so I’m just wondering how this is all going to play out. Lyn P. Kirby: Let me give you some forward stroke, maybe not quite as specific although we do have a very specific game plan but I’ll try and keep it at a broad enough level but enough to give you some color. The first thing I probably should clarify is that, just for anybody who does not understand how we have organized all those responsibilities, Bruce has never had responsibility for real estate or site selection during his tenure with the company. That has always reported into me before Bruce joined the company and during his time with the company because it was such an integral part of our brand strategy and as you may recall us talking about on the road show we have a very seasoned Senior Vice President on that business who comes to us out of the Borders business. So that piece of our responsibility will stay where it always was which is reporting in to me. Recruiting for new stores has always gone through our HR team which have always reported in to me and it’s also headed up by a very seasoned player who has been with the company now for I think six years and that will stay right where it is and stays reporting in to me. And the rest of the team we have in terms of the responsibilities that did report in to Bruce which is around the distribution and the supply chain side of the business is again a very experienced team that were in place before Bruce joined the company, they are still in place today and I have great confidence that we have the right team in the right place to continue with the strategy of the business. I think if I could summarize the company is very dynamic and at this point in time, Bruce was just not the right solution for us and was not the right structure for us at this point in time. But I hope that clarifies enough. There are other smaller pieces of responsibility that reported in to Bruce but I suspect that most of your concern was around real estate and distribution and distribution will report in to Gregg as we go forward. Neely Tamminga - Piper Jaffray: That does answer that question and thank you for taking the time to explain that, it was certainly a little bit of a surprise so I certainly appreciate that. And then just one more final question for Gregg here, in terms of what you’re seeing in average ticket or I guess for Lyn, average ticket and traffic are both up, I’m just wondering within ticket is it pricing because of Prestige or are you also seeing an increase in UBTs? Can you give us a little sense of how that ticket looks? Lyn P. Kirby: The primary driver is definitely the Prestige mix on the business. As that business continues to grow in double digit comp numbers it is our fastest ramp business and you know we don’t comment on categories specifically but I think that particular category since it is such a growth platform I’m always comfortable continuing to give you a little bit of color and flavor on that one, the growth is not out of UBTs, it is definitely just out of the average ticket price of that category and as we did say we are putting positive traffic numbers on the table in fourth quarter and quarter to date first quarter we still continue to put positive traffic numbers on the table as we continue to just, I always say flex, but to creative, it’s not just flexing that marketing machine, doing some very creative marketing events both in store as well as in our print medium.

Our next question comes from Liz Dunn with Thomas Weisel. Please proceed with your question. Lizabeth Dunn – Thomas Weisel Partners: Just a little help on the model, are we still looking for gross margins sort of flat to down slightly in 2008 and SG&A leverage and what sort of share count should we be looking for? And then I have a follow up question on the brand test strategy? Gregg R. Bodnar: Liz, for the full year as we’ve previously mentioned the cost of the new distribution center is going to put a little downward pressure on gross margin along with our increased square footage puts a little bit of downward pressure on fixed cost leverage in the stores. So we are expecting gross margin rates to be down slightly to last year and then SG&A leverage is the primary driver to improving operating margin from there. So we’re expecting about 70 to 80 basis points of SG&A leverage at the top end of the guidance we described. Lizabeth Dunn – Thomas Weisel Partners: And the share count? Gregg R. Bodnar: And the share count for the first quarter 60 million, for the full year 61 million. Lizabeth Dunn – Thomas Weisel Partners: And then my question related to the tests, how many brands are you currently testing and help us understand how you decide what to roll and then also Neely was sort of focusing in on what would be the determinant of when to test in one store versus 30. To the extent that there was a larger brand that you didn’t have big concerns on distribution strategy for and you didn’t have big concerns on whether or not it would resonate with your customers, what exactly would you be testing for? Lyn P. Kirby: Let me see if I can get them one at a time. The one store versus 30 stores is primarily a reflection of what the brand would like to test with us and for them to get a sense of whether this is a good fit for them as well as for us so one store test is more on the brand making sure it’s a good fit for them, getting to know us. For 30 stores is a brand that has a comfort level that this is going to be a business fit that is right for them relative to the rest of their distribution channel. So that is probably the broad parameters of what causes us to make that decision. So it is done pretty much in concert and partnership with the brand and what works for both them and for us. In terms of the brands that we either have or expect to have in test in the first half of this year, I think it could be up to three that we will be able to test in first half of this year and I think the last question was and what determines whether we’re going to roll it or not roll it, it is most obvious which is just to make sure that it does have the resonance with our customers and the acceptance with our customers as demonstrated by the sales numbers as well as the brands comfort that this is a good time and fit for them relative to the rest of their distribution channel. Lizabeth Dunn – Thomas Weisel Partners: Is there anything to constrain you from rolling with say three brands in one six month period or would that be overwhelming? Lyn P. Kirby: It’s actually an excellent question. We want to be very prudent in how many we would want to roll and so we may pace that out particularly in a back half year roll where we really only have a quarter to roll, we certainly wouldn’t want to be rolling a brand during the holiday season and hence Stila as an example is why we held that until January. We did not want to distract our store from delivering the total business as opposed to just the more complex roll out of an individual Prestige brand during the holiday season. So we are not at the point of making that decision but I would say to you I do not see us rolling three brands in the back half of this year. We will pick and choose the ones that are the best fit for both the brand partner as well as us for the third quarter time period. Lizabeth Dunn – Thomas Weisel Partners: And if I could just squeeze one more in on real estate, do you see any opportunities opening up on the real estate front, because there are some more mature retailers that are starting to announce some closings. Does that open up space in existing centers which wouldn’t have [inaudible]. Lyn P. Kirby: We are seeing it at fairly small level at this point in time, not a complete big bulk opportunity of real estate sites that come up although I will say to you we have done some work and analysis in case that opportunity arises on some opportunities that we think may become available. So we have done some homework already so that we would be good to go if the opportunity was to arise but there is nothing significant on the horizon right at this point time for the 2009 or 2010 year and nothing that we see for the back end of this year right at this point in time. But we certainly are watching.

(Operator Instructions) Our next question comes from Daniel Hofkin with William Blair. Please proceed with your question. Daniel Hofkin - William Blair & Company, L.L.C.: Just wanted to follow up a little bit on the same store sales specifically average ticket, how much I guess on the cost side how much cost inflation are you seeing and to what degree are you able to pass that through such that that might also be benefiting the comp store sales on the increase in average selling price aside from the benefit to average ticket that you’re seeing from the greater mix of Prestige? That would be my first question and then with regard to gross margin as we progress through the year, if you could just give a little bit of color as to how that might flow particularly relative to the third quarter where I believe that you had a bit of a change in the marketing calendar and so the third quarter gross margin of 07 was higher with a partial offset on operating expenses, how might that affect what you’re expecting for 087 as a whole? Gregg R. Bodnar: We’ll take those in two pieces. One we haven’t provided quarterly guidance for two, three and four specifically. What I would continue to remind is for the full year we expect gross margin rates to be down slightly. For the first quarter we’re expecting gross margin rates to be flat to just up slightly and then as we flow throughout the course of the year it’s really more about the store opening schedule, it drives the most significant fluctuations in gross margin rate. Lyn P. Kirby: Dan, on the first half of your question – Daniel Hofkin - William Blair & Company, L.L.C.: Yeah, the first half of the question was just regarding I guess the average ticket component of same store sales. Obviously packaging and other cost pressures for many retailers selling consumer packaged goods that has been accelerating to what degree are you able to pass on cost increases if you’re seeing them and how much might that be lifting the reported same store sales or the average ticket component of same store sales? Lyn P. Kirby: Dan, the answer is none and none at least at this point through the first quarter numbers we are not seeing any increases from our major partners on the business nor is there anything assumed in the three to five related to any price increases. Daniel Hofkin - William Blair & Company, L.L.C.: Is I guess with regard to your comp sales guidance for the quarter and the year and recognize fully that we’re only halfway through the first quarter, I guess given the way that the comparisons flow would you generally expect to be maybe closer to the higher end of that range later in the year and more middle to lower in the first two or three quarters? Lyn P. Kirby: We have assumed same economy through the quarter, Dan, the one thing that does flow a little bit we do have higher comps that we’re jumping over in first quarter than fourth quarter as you know from our numbers from last year so that may cause some profile in the quarterly numbers but we are not assuming neither an increase nor decrease in the economic environment for the back part, so it’s more about our internal hurdles we’re jumping over.

Our next question comes from Gary Giblin with Goldsmith and Harris. Please proceed with your question. Gary Giblin - Goldsmith and Harris: To the extent your sales were a little softer than you expected was that more in products that lacked newness versus brands with a lot of new entries, let’s say would a Garden Botanika have done better than a Clinique because of the pace of new product introduction? Gregg R. Bodnar: Gary, what time period are you referring to? Gary Giblin - Goldsmith and Harris: I’m talking about the fourth quarter, let’s use the fourth quarter. Lyn P. Kirby: No, Gary, the fourth quarter, again relative to what we had originally expected despite the positive traffic versus prior years that we put on the table to the overall challenging environment for fourth quarter the competitiveness of as I had mentioned in the fourth quarter time period we of course are competing in the market of all gift dollars as opposed to just personal care dollars in the other three quarters. It was far more a reflection of a lower traffic number than what we would have hoped for in a different economy is what I would say to you. But I do want to remind you nonetheless positive versus prior year. And there was no major shift between newness and existing business and response and performance to that although I will say to you I’m always delighted to have newness in difficult economy. I think we always talk about the four E’s in our business and that E for Entertainment and new products is one aspect that. I’m always delighted to have some exciting newness to speak to customers about in a difficult economy.

There are no further questions in the queue at this time. I’d like to turn it back over to management for any closing comments. Lyn P. Kirby: Thank you again. I look forward to speaking with you during our first quarter conference call in June if not sooner. Thank you very much for your time this afternoon and your questions.