Tom Lennox - CC Mike Kramer - CFO Mike Nuzzo - VP of Finance

Randy Konik - Bear Stearns Jeff Black - Lehman Brothers Adrienne Tennant - FBR Janet Kloppenburg - JJK Research Kimberly Greenberger - Citigroup Jeff Klinefelter - Piper Jaffray Brian Tunick - JP Morgan Dana Cohen - Banc of America Lauren Levitan - Cowen & Co. Christine Chen - Needham & Company Paul Lejuez - Credit Suisse Lorraine Maikis - Merrill Lynch

Good day, and welcome to theAbercrombie & Fitch Third Quarter Earnings Results Conference Call. Today'sconference is being recorded. (Operator Instructions). We will open the call totake your questions at the end of the presentation. We ask that you limityourself to one question during the question-and-answer session. At this time,I would like to turn the conference over to Mr. Tom Lennox. Please go aheadsir.

Good morning and welcome to our thirdquarter earnings call. Earlier this morning, we publicly released the quarterlysales and earnings release, balance sheet, income statement and an updatedfinancial history. If you haven't seen these materials, they are available onour website. This call is being taped and can be replayed by dialing888-203-1112. You will need to reference the conference ID number 2580041. Youmay also access the replay through the Internet at www.abercrombie.com. With me today are Mike Kramer,Chief Financial Officer; Mike Nuzzo, Vice President of Finance; Brian Logan,Controller; and Kristen Blum, Chief Information Officer. Today's earnings call will belimited to one hour. After our prepared comments, we will be available to takeyour questions for as long as time permits. Please limit yourself to onequestion, so that we can speak with as many callers as possible. Before we begin, I remind you thatany forward-looking statements we may make today are subject to the Safe Harborstatement found in our SEC filings. Now to Mike Kramer.

Good morning. I would like tobegin by saying that we are proud to, once again, post record sales andearnings. Our financial results were excellent. Despite the tough macroenvironment, our business remained consistent, which speaks to the strength andthe differentiation of our brands. We generated solid sales growth,gross margin expansion and strong earnings growth. Our company is performingvery well across all of our concepts. Importantly, Abercrombie & Fitch hasgenerated strong results for many years. This track record reflects the properand strategic positioning of our brands, as well as our ability to execute ourstrategy at a very high level. As we have said, our main focusis on building, maintaining and enhancing each of our brands. We believe thisphilosophy is what fundamentally sets us apart from the so-called typical keenretailer. Our business is differentiated,because our customers value our brands, each of which represents a lifestyle towhich they aspire. This differentiation enables us to generate high marginsover the long-term. Maintaining full price selling in each of our businesses isa critical element of the strategy. And our results in the third quarter, wheresales increases were challenged, underscore the importance of maintaining ourprofit margins. Because our brands are notintended to appeal to everyone, an important characteristic of our businessmodel is that we recognize its limits; how much we can grow each of our brands. The fact that we've remaineddisciplined in this regard is demonstrated in our consistency at a stronggrowth in sales and profits. I now want to discuss why we believe that we cancontinue to grow profitably, with relatively low risk, and that we areleveraging the business to drive higher margins. While we are less than halfwayto full potential from the store expansion standpoint domestically, we areincreasing focus on expanding the ANF and Hollister brands on an internationalbasis. While this approach does notdiminish the confidence we have in either RUEHL or our fifth concept, itrepresents our decision to invest in projects that we believe posses thehighest returns on capital, while also possessing the lowest risk. For example,our international stores continued to generate exceptional sales and profits,and their high performance in the recent quarters only increases ourexpectations for them in the future. The Canadian stores performedexceptionally well in the quarter, each generating more than three times theproductivity, versus its average US counterpart, with significantly strongerfour-wall margins. Canadian cities that are currently on our hit list include Vancouver, Calgary, Toronto, Ottawa, Edmonton, Halifax and Winnipeg. In the UK, the Abercrombie & FitchLondon flagship generated similar sales per selling square foot, as did the Fifth Avenue store,which continues to perform extraordinarily well. Construction is underway forthe Abercrombie & Fitch flagship in Ginza, Tokyo, Japanfor the late 2009 opening. We are also currently assessingopportunities for Abercrombie & Fitch in Milan,Copenhagen, parts of China,and for a Hollister location in London.We hope to announce another major Abercrombie & Fitch European locationimminently. In addition to pursuing growthinitiatives, we are working hard to improve efficiencies in both our sourcingand supply chain, so that we can create more operational leverage. We plan toachieve this, in part, by implementing systems that enable more integrated processesand analytics, thereby, positioning our associates to work smarter and moreefficiently. During the third quarter, wecompleted our first two phases on the IT Business Intelligences project, inwhich key data elements were loaded into the data warehouse system. Ad hocanalysis capabilities were provided to key users throughout the organization.And critical holiday reporting was moved to the business intelligence platform,from the legacy platform, to improve overall performance on our current legacytransaction systems. Also completed this quarter wasthe rollout and installation of traffic counters in all of our stores. We arejust beginning to collect the data for greater understanding in management oftraffic and sales conversion patterns. This data will become especially usefulwhen we anniversary the accumulation of traffic data next year. Other IT initiatives include thenew recruiting in talent management system, which was fully integrated to ourcorporate human resource system during the quarter. We also completed the first twophases of our Identity and Access Management Solutions, which will providebetter control and provisioning of system accessibility. Over the past sixmonths, we have driven down inventory per square foot levels significantly. Weattribute most of this progress to better managing commitments in the basicmerchandise categories. As a result, we are now startingto turn inventory faster. We see additional opportunity to accelerate churnsover the next several quarters, as we implement the new merchandise and keyitem planning system, which will help to optimize deliveries of fashion itemsor seasonal merchandise. These improvements will alsoaccelerate inventory turns, while reducing stress to the logistics operation andimprove the use of working capital. From the P&L standpoint, weare effectively managing the expense structure, where variable component[reflects] in line with volume. Over the past few years, spending hasfluctuated significantly. We are now at a point where the bulk of our requiredinvestments have been made throughout the stores' organization, the home officeand distribution network. We have established a new base level expensemanagement, and although we are currently operating at a high operating margin,these enhancements combined with our company's excellent growth opportunitiesshould enable our company to expand operating margin levels beyond theircurrent high levels. Now, Mike Nuzzo will discuss thefinancial results.

Thanks Mike. Good morning. Onceagain, we delivered strong financial results reflecting both top line growth,and effective financial management. Most importantly, from a quality ofearnings perspective, we showed a meaningful increase in operating income ratein the quarter, while absorbing incremental expenses in stores and in startupresources for our fifth content. Third quarter net sales for the13 weeks ended November 3, 2007, increased 13% to $973.9 million from $863.4million, for the 13 weeks ended October 28, 2006. Third quarter direct-to-consumernet sales increased 48% to $61.3 million for the 13-week period, ended November3, 2007. Total company comparable storesales increased 1%. Transactions per store per week increased 3% and averagetransaction value was flat for the 13 weeks ended November 3, 2007, compared tothe 13 weeks ended November 4, 2006. Regionally comps were strongestin the Northeast, Canada andin the tax-free impacted states Florida and Texas. Comps were weakest in the Westand Midwest regions. Third quarter grossprofit rate was 66.2%, up 40 basis points compared to last year. The change inrate is attributed to a higher initial markup rate and a lower merchandiseshrink rate, partially offset by a higher markdown rate versus last year. As in the second quarter, ourstrong fashion tops business contributed to both a higher overall IMU, and ahigher overall markdown rate. We ended the third quarter with inventories down 15%per gross square foot at cost versus last year, consistent with the guidanceprovided on our second quarter earnings call. This result is attributed to owninglower levels of basic inventory compared with last year. Going forward, fourth quarter inventoryper gross square foot, at cost relative to last year, is expected to decreaseat an equal or slightly greater level than in Q3. We continue to make progressin implementing systems and processes to drive more optimal inventory levels tomeet our sales expectations. Stores and distribution expensefor the quarter, as a percentage of sales, increased 80 basis points to 36.5%versus 35.7% last year. The increase in rate is partially attributed to storepayroll, specifically the effect of minimum wage and management salary levelincreases at a higher direct and store packaging expense rate. Direct-to-consumer orderprocessing expenses were also higher as a percentage of sales compared withlast year since our DTC sales growth rate exceeded the total company salesgrowth rate. Our distribution center UPHincreased 13% in the quarter, reflecting greater efficiencies in the operationof our second DC. For the third quarter, marketing,general and administrative expenses, as a percentage of sales, decreased 60basis points to 10.7% from 11.3% last year. The reduction in rate versus lastyear resulted from savings in travel, consulting, legal, and in-store marketingexpense rate. We continue to expect MG&Aexpense to be approximately $105 million for the fourth quarter 2007. For thethird quarter, operating income increased 15% from $162.8 million last year to$186.6 million this year. The operating income rate, as a percent of sales, was19.2% compared to 18.9% for the third quarter of last year. The company generatedapproximately $261 million in net cash flow from operations in the thirdquarter, a 39% increase over third quarter of last year. The effective tax ratefor the third quarter was 38.5%, compared with 38.6% for the third quarter lastyear. Net income for the third quarterincreased 15% to $117.6 million, from $102 million last year. Third quarter netincome per diluted share increased 16% to $1.29 from $1.11 last year. In the quarter, the companypurchased approximately 2.6 million shares of common stock in the open market,having a value of approximately $208.9 million, pursuant to the August 2005,ANF Board of Directors share repurchase authorization. The company has approximately 2million shares available to repurchase under the 2005 authorization, andyesterday the Board of Directors approved an extension of the stock repurchaseprogram, authorizing the company to repurchase up to an additional 10 millionshares of common stock. In the quarter we opened 12 new Abercrombiestores, 15 new Hollister stores and three new RUEHL stores. Consistent with theguidance provided on our second quarter earnings call, our fiscal 2007 squarefootage is expected to grow by approximately 10%, primarily through the openingof six new Abercrombie & Fitch stores, 25 new Abercrombie stores, 58 newHollister stores, and seven new RUEHL stores. We also look forward tointroducing our fifth concept store with the opening of four stores in January2008. Our capital expenditure cashoutlays for the third quarter of fiscal 2007 were approximately $100 million,and combined with our expectations for the fourth quarter, we project totalcapital expenditure levels to fall within the previously established guidancerange of $395 million to $405 million. The store refresh program remainson course, and by year end we should have positively impacted approximately 400stores in the chain with our $60 million investment. IT and home officeinfrastructure projects are also proceeding on schedule, and will be a criticalelement in supporting our international expansion efforts. With respect to our full fiscal2007 guidance, we reiterate our expectation that net income per diluted sharewill be in the range of $3.63 to $3.67. The low end of the guidance rangereflects a flat comparable stores sale scenario for the fourth quarter offiscal 2007. As mentioned previously, fourthquarter 2006 results include incremental net income per diluted share of $0.06,resulting from an extra selling week in the fiscal 2006 retail calendar, and$0.07 resulting from the favorable settlement of tax audits. Although we enter the 2007Christmas shopping season well positioned for success, our focus remainslong-term, and most importantly, we are making strategic investments in stores,merchandise development and administrative support infrastructure, to match ourfive and even 10 year growth plan. Our iconic brands have positionedus for global expansion. While our investments and operational improvements willallow us to affectively execute this growth strategy, we expect the pay-off forsuch expansion to be sustained, long-term. This is consistent with increases insales, operating income and earnings. We are now available to take yourquestions. Please limit yourself to one question, so that we can speak with asmany callers as possible. After everyone has had a chance, we will be happy totake follow-up questions. Thank you.

(Operator Instructions) We willgo first to Randy Konik with Bear Stearns. Randy Konik - Bear Stearns: Hey great thanks a lot. Can youjust, you got leverage in the quarter on 1% comp. Can you just give us somecolor on how you expect that your point of leverage is of what comp you needfor the fourth quarter? Do you see that given your cost structure, yourinfrastructure, do you see that kind of point of leverage changing in thefuture and just separately when will we see the pre-opening expenses for the Japanflagship hit. Will it will hit on '08 or will that more of a '09 event? Thankyou.

Randy this is Mike Kramer. I willtake those. In terms of, yes there was this phenomenal quarter in terms ofleverage and quite frankly even with the reported results and the leverage thatyou saw there of 15.2% increase year-over-year of net income on a sales growthof 12.8%. If you back out some one time hits that we took roughly equating toabout $5 million to $6 million, we actually grew our bottom line, which I amgoing to call it quality of earnings number of 20.2%. So, it was a spectacularquarter in terms of leverage. How is this going to translateinto the fourth quarter, it's going to be difficult because we are actually anniversaryingthe 53rd week which allows for some significant leverage which talks to those,I think the $0.06 that we talked about earlier. However, what I will tell you isfor the year 2007, I am shooting for operating margin expansion on flat compsand that’s all I am going say. In terms of future after that, we do anticipate,our model is built for leverage, and I am not going to talk about the saleslevel in which that we are going to attain that leverage. The second question you talkedabout pre-opening for Japan.Right now, the Ginza store it's actually beingconstructed as we speak. It's still on schedule for late 2009, most of ourpre-opening expenses will be in late 2009.

We will take our next questionfrom Jeff Black with Lehman brothers. Jeff Black - Lehman Brothers: Yeah. Thanks a lot. Goodafternoon.

Good morning, Jeff. Jeff Black - Lehman Brothers: Good morning. How should we lookat CapEx next year? I know you might not be interested in discussing it, buthow do we frame our thinking on the level of increase we might see given thenew concept in the investments internationally. And secondly, on RUEHL, are westill talking being profitable by the end of this year and are we going to seethat growth rate accelerate on a unit basis next year? Thanks.

Jeff, it's Mike Nuzzo, I can takethe first part of the question, and Kramer can address RUEHL. As far as CapEx,we will be disclosing our CapEx plans for 2008 on the fourth quarter call. Buthaving said that, what I've told people in terms of a framework for thinkingabout it, obviously, we're going to continue with our new store expansion andthat occupies any where from 200 million to 250 million in any given yeardepending on the number of stores. We will also continue to refreshstores and I think, we’ve mentioned that, we have some catching up to do thisyear, and so, we likely will be spending an amount similar to what we’ve beenspending in the past on refresh, although it might be lower because of thecatch up work that we’ve done. We will continue to invest in the home officeinfrastructure; we talked about our IT investment. That will likely continue ata similar level next year. And then, the real wild card I think isinternational expansion and specifically flagship construction which as youknow and can imagine the CapEx there is much more substantial than an averagestore. So, I think that should help youto at least frame how to think about our CapEx into next year. We've talkedabout the fact that it's likely not going to grow substantially, but again, Iwill emphasize that the wild card is the number of flagships and internationalopportunities that we see in the next year.

Jeff. Before I start on RUEHL,I'll also add to that saying that into the next quarterly earnings call, wewill give more flavor with regards to obviously our CapEx into next year, butprobably more importantly to you is really more of a short-term work in termsof our approach internationally. Let's talk about RUEHL, and I amso glad that you asked the question, because I know it's on the front of thelot of people's minds, but I have got good news and okay news with regardsRUEHL. The good news is that, RUEHL reached profitability on a four-wall basisin the month of August. Now, before you get too excited,obviously the month of August is a very high productive month for us because ofback-to-school. But what it does shows, it does show how we've been able tomove the P&L particularly the cost structure and getting us in line withprofitability at a roughly a range of 16 stores. Now, keep in mind, we'vetargeted a lot of our P&L to critical mass of 25 to 30 stores. So, this isextreme improvement in terms of the glide path. Now, they are not so good news orthe okay news is that on the top-line basis it's not performing as well as whatwe would like. If we continue on with regards to the likes that we've seen inthe last couple of months into Q4, we do not anticipate profitability in Q4.Now, it will be very close. The impact to our P&L from a negative pressureperspective will be nominal. So, the intent here was to actually get RUEHL to aplace to where it wasn't a negative impact on our P&L and I think thatwe've achieved that. Now again, we are still very bullish on this brand. Ithink people forget this some of other brands took a long time to really comeout of the shoe and we believe that there is niche here and we’ll actually feelthat niche. So, hopefully, information I was able to give you today, gave yousome light and confidence in terms of the brand.

We'll go next to Adrienne Tennantwith FBR. Adrienne Tennant - FBR: Good morning and congratulationsin a very, very tough environment. My question really is on the IMU side, whereis the upside coming from and how sustainable is that, when should we thinkabout that anniversarying itself? Thank you.

We, in the quarter, got upside inIMU in a couple of different ways. First, we talked about running a substantialtops business, which inherently carries a higher IMU. We also got benefit fromour Londonstore, which because of the price point provides some benefit to our IMU. Will this continue? Well, again,I think that our focus is on obviously driving improvements in the cost ofgoods. We continue to talk about maintaining a status quo for gross margingo-forward, but again we have shown historically that we have been able to growour gross margin. And again, we are very optimistic about what we've seen onthe IMU side and in the total gross margin part of the business.

Adrienne, this is Mike Kramer. Iwant to add to that a little bit in terms of the IMU and it really speaks to someof our opening comments in terms of our international expansion and our focus.IMU was impacted by our Londonstore by 10 basis points. That's huge guys, one store on [$73.8 billion]company, 10 basis points in terms of IMU. So you can see how excited I am asCFO in terms of what the international business as it grows to a higherpercentage of our business does to that operating margin expansion that I am shootingfor.

We'll go next to JanetKloppenburg with JJK Research. Janet Kloppenburg - JJK Research: Hi, Mike. Hi, everyone.Congratulations.

Good morning, Janet. Janet Kloppenburg - JJK Research: Good morning. Just a couple ofquestions. First of all on RUEHL, can you discuss your strategies to bring agreater level of sales consistency and profitability to the business in '08? And with the respect to Concept-5,if you could talk about whether or not that will be additive, incremental, orneutral possibly a hurt to earnings next year? And lastly, on the comment youjust made about IMUs from the Londonstore and how much it helped, how should we be thinking about that comparisonin '08? Thanks very much.

There was a lot in that question.

Yeah, maybe I can add on. Kramerhad addressed the RUEHL question, but let me just add on a few points. We havetalked about achieving IMU parity in RUEHL with the other brands and weachieved that on a much smaller store base than what we had originallytargeted. We also talked about loweringoperating costs in the store and we've achieved that as well, especially in thearea of payroll. We talked about developing a smaller footprint and we've donethat and we feel obviously that's going to help us in depreciation and rentexpense for the go-forward stores. As you know, Janet, we launched awebsite. We are selling handbags and fragrance and we will expand that to totalproduct in January. And all of these items have positioned us not only forimprovement in profitability in 2007 but will be a strong component of thebusiness and the success of the business into 2008. You said it, we just have todeliver on the top line and the important thing that I want you guys to alsotake away is that we are also as maniacally focused about sustaining thelong-term position of this brand as we are with all of our brands. So, we arenot going to make silly decisions, just to achieve profitability. You can pushIMU to the point the where the product quality suffers. You can reduceoperating expenses to the point where the customer experience suffers and weare not going to do that and not doing that is going to be important for notonly today but into the next couple years with RUEHL.

And this RUEHL conversationactually ties nicely to your question with regards to the Concept-5. I meankeep in mind that strategically we have always positioned a portion of our coststructure to develop new growth initiatives and we have quite a few of them andthat's what allows us to be able to flip levers to be able to control our coststructure, because it allows for discretionary expenses. RUEHL, obviously for the lastthree years, has been a negative pressure to our P&L to the tune of I thinkfirst year we quoted $30 million loss, last year around $21 million to $22million loss. With our improvement that we have seen in RUEHL, it accounts forsome room year-over-year in terms of negative pressure, in terms of othergrowth initiatives and Concept-5 will fit that [bill] for us. Concept-5 yearone will be a negative pressure to our P&L, it will be a loss year one. Weare not going to talk about the amount, but suffice it to say we are not goingto let it impact our efforts to expand our operating margin. Keep in mind, one of the wordsthat you hear or phrases that you hear non-stop throughout our script, is riskfree, risk free, risk free. With regards to these two new concepts, RUEHL andConcept-5, we are looking at opening, 12 to 15 a year until we actually see themomentum that actually gives us the confidence to accelerate that. And this isa company that will always take a look at growth initiatives.

We go next to KimberlyGreenberger with Citigroup. Kimberly Greenberger - Citigroup: Great, thank you andcongratulations on a nice quarter.

Thanks, Kim. Kimberly Greenberger - Citigroup: I was wondering if you could talkto us just strategically about inventory, I know you are not ready to give anyguidance for the quarter through 2008. But it sounds to me like from yourcomments that, with your new IT systems the expectation is that we'll continueto see declines in inventory per square foot in line with your desire toimprove turns. And I was wondering if you see a multi-year opportunity in that.Then just secondarily, the international opportunity sounds really terrific andI am just wondering, if there is an opportunity potentially to get a littlemore aggressive with your store openings internationally. Obviously real estateselection is critical to success and no one would recommend reckless expansion,but one store every couple of years seems like maybe a very conservativeapproach. Can you comment on that? Thanks.

I’ll let Mike take the first partof that question.

Kimberly, on the inventorystrategy, we do have internal targets for our inventory position and whetheryou measure it in turns or in days inventory outstanding, we're not going toshare them with you, but what I can tell you is that and it's obvious from thestatistics there is still considerable opportunity to improve our inventoryposition. And you mentioned about it potentially being a multi-yearopportunity. Absolutely and I think obviouslywe’ve talked about the systems that we put in place to not only manage ourbasic inventory, which I think we've done a pretty good job on lately, but alsogo forward to really gauge the fashion buys to relate to our salesexpectations. So not necessarily driving the fashion buys down all the timeit's simply measuring them against our sales expectations and making sure we'reas accurate as we can be. But I will also mention that weare not going to go back to the way it was where we stripped the stores ofimportant inventory levels and you would walk into a store and there would beempty wall base, you would lack size integrity. We are simply not going to goback to those days just to achieve some sort of inventory target that thefinance team thinks is appropriate. We have presentation demands, thepresentation in the store is a strategic advantage for us and we are going to inventoryof the stores to support that strategy. So, again obviously we've givenyou some guidance for the balance of the year. I think we'll continue to seeimprovement into the next year, but I just want to make sure that ourexpectations are tempered with the way that we run the business.

Kimberly, I am so glad that youasked that question, that people are going to think we planted that question interms of accelerating international expansion. Because as I said in the scriptwe are refocusing our efforts there in terms of more of a proportion of ourefforts in terms of capital, investment and growth script footage expansion. Yes, opening one store each yearseems somewhat very conservative, but keep in mind that until we actually reachthe level of confidence we were trying to be conservative. And I think we'vedefinitely reached that level of confidence. I would say over the last three tosix months, we have definitely reached that level. I have got some news for you thatwill probably be your headline for your Analyst reports in terms of one of thefactors that gives us confidence. Our Fifth Avenue store is annualizing to over $100 millionin sales. Of which more than 50% is international business. We have alsohighlighted the same trend in a lot of our high tourist locations throughoutthe United States, obviouslythe success that we have seen in Canada,the success that we have seen in London, which Itold you what the New Yorkstore is from a total dollar perspective. And we have also said that on adollar per selling square foot Londonis beating the [Domino]. All this combined with the directconsumer, the list that we have seen when we put brick and mortar really giveus the confidence to really focus more efforts in terms of our internationalexpansion. As you said, lead times are very long. We have been really focusingfor probably the last four months in terms of really nailing down some sites,so I think, imminently, in the next three to six months you're going to see ustalking more candidly about some of the sites that we've locked and loaded withregards to international expansion. We believe not only Abercrombie &Fitch, but Hollister as well as Abercrombie Kids are going to be a huge growthvehicle for us internationally. And as we've said our international business ishighly accretive to us, so this is huge growth, low risk, highly accretive.

We will go next to JeffKlinefelter with Piper Jaffray. Jeff Klinefelter - Piper Jaffray: Hi guys, congratulations on greatperformance. Two quick questions, Mike, just following up on international,which I also think is a very good question. In terms of your growth, you’vetalked in the past at our conference and in other events about the differencesin expansion of Hollister versus Abercrombie, the differences between thevarious European markets, mall versus non-mall. Could you go into that a littlebit more as well? It seems, there might be an opportunity to go more mall basedacross Europe, which may be a little fastergrowth. Are there some differences between these concepts in that respect andthen, my other question is just on this domestic current environment ormaturing fashion cycles, what we'd call it, tops versus bottoms, any dynamicsthere that you could call out, in terms of how you are maintaining the stablecomp trend, despite the traffic volatility?

Yeah, I will take the first partof that question. The international opportunity or the strategy if you will forour brands, A&F and Hollister are completely different. Abercrombie &Fitch, which is actually perceived as even more iconic and aspiration ofglobally than even here domestically, which is almost, scary, it really affordsfor us to actually take a look at this more in terms of flagship-oriented highprofile oriented locations throughout Europe, Japan and Asia. Again, it's goingto be higher volume, lower number of units and to maintain that aspirationalnature with regards to that brand. Hollister has not reached yet theiconic status, but it's well on its way, because of the price point positioningwe believe that this will be a much more of a mall based, just like you areseeing here domestically. And yes you hit it on the head, that a mall basedeven in Europe will be able to accelerate ourgrowth much faster than we do with Abercrombie & Fitch high profileflagship strategy. Now, over the last quarter, MikeJeffries spent a week in Europe, and he did not spent it in London, Paris thebigger cities, he went out to what we call the average markets throughoutEurope and took a look at the retail patterns, what's available there from theretail perspective, the malls that they existed. To really take a look at them,and try to understand the European shopper and really try to understand how deepcould we penetrate from a Hollister perspective? We obviously have some idea interms of flagships for A&F, in terms of the demographics if you will, butHollister was a question, and we are very excited about what Mike came backwith. And the opportunity for us to grow significantly in the Hollister brandin Europe is huge, it's significant. So, weare really excited about it. Jeff, on your question about thedomestic environment and sort of the trends, tops, bottoms, we are pretty happywith where we are positioned, obviously, as we've talked about and as otherretailers have talked about. There is not a driving trend in denim. But, havingsaid that our denim business in the third quarter. It did not cover-off theball. But, it certainly didn't disappoint and improved from where it had beenearlier in the year. Shorts business was exceptionalin the third quarter, and then in the tops categories the big three continue tobe graphics, fleece and knits. And they continue as you alluded to drive thebusiness. I would also mention that, wehave very positive outlook on the accessories and the fragrance business andyou are probably familiar with our sessions initiatives that we are doing inHollister. So, given in general a difficult environment and people are talkingabout illuming recession and concerns about consumer spending. We could not be happier with,obviously on a whole product mix. How it's being received and frankly, I justwant to say that we are not willing to give up on our customer base at thispoint, by any stretch and again we continue to be very happy with what we haveseen.

We will go next to Brian Tunickwith JP Morgan. Brian Tunick- JP Morgan: Good morning, guys. I guess justsort of follow-up on that. I am trying to remember the last quarter where theAbercrombie adult business outcome Hollister and I am sure some would obviouslybe Abercrombie adult business comp came from flagship New York City store. But, I mean what are youguys saying internally about what's happening at Hollister for the weaknessparticularly in the juniors business and what is some of the plans to sort ofreinvigorate the Hollister comp?

Brian, Hollister, to give you afeel for the third quarter, the weakness in the Hollister business was inbottoms in particularly Betty's denim. And again, we talked about the denimbusiness. We talked about the lack of a strong fashion drive in Denim. So, Hollister was weaker in thatarea, but I got to tell you, looking at the other aspects of Hollister, we arevery excited. I mean again, you are talking about a business that $540 a squarefoot was the potential that we feel the potential to grow well beyond that. Wewere up 2% in transactions per store per week in the quarter. We opened new stores that are onpar in terms of productivity with our existing store base. We are doing productexpansions. We talked about the Sessions program. We've got a big fragranceline called [Sokal] that's out in the store. And again, just to throw out someother statistics that makes this optimistic, our international internetbusiness in Hollister is up over a 100% in the quarter. So, again, we are absolutelythrilled about where we are with Hollister today and especially with theexpansion opportunities that we have both domestically and internationally.

Yeah, now I'll just add to thatin terms of, just kind of layering on some of the things that Mike Nuzzo hassaid is, we are a must have brand, and to a large degree, we are more immune ifyou will to some of the macroeconomic pressures that a lot of other retailersare seeing. But in terms of the must have brands when people need to buy, theyare coming to us. So in back-to-school in Christmasthat's when you really see the true health of our business and it's the periodsbetween that are much more difficult to forecast, and quite frankly MotherNature has a huge impact to that. Guys, we really did see a very goodback-to-school, and subsequent to that, we've actually seen warmer than normalweather and towards the latter part of Q3, we actually started to Mother Naturehelp us out in terms of the long sleeve business and it really came through. Sowe are very excited about what we see layered on with the lot of things aboutMike has talked about in terms of even the shrink that we saw last year in Hollister,the negative lacks that you saw last year in Hollister. So we are prettyexcited about what's ahead of us.

We'll go next to Dana Cohen, withBanc of America. Dana Cohen - Banc of America: Hey, guys, thank you. Couple ofquestions, one, is just the other line was up versus the prior year, just whatwas that driving it? Second, given the inventorycontrol and the systems initiatives, should we be thinking the opportunity ongross margin go-forward is going to be less IMU and really more markdowns asthe systems start to really kick in? And then third, you mentionedthat you think you are behind a number of the investment items, I just couldwonder if you could repeat that on the expense line. And so do we think we areat the point where the selling expense can start to follow the significantimprovement you've seen in MG&A?

Dana, I will work backward onyour questions. When we said investments, I think we were referring to the CapExinvestment in the stores for the refresh program that we had gotten behind overthe last couple of years and we're making up for that in the current year. As far as your question aboutinventory control and whether we could see improvement in the gross margin,that's driven more by markdown, more optimized markdown situations as opposedto IMU. I can't really give you a definitive piece of guidance on it. I couldtell you we were pushing on both, and we have told you to not model long-termimprovement in gross margin. But again, we have talked aboutopportunities. We have talked about the international upfront, that's providingsome substantial opportunity for us. So, that's about the best I can give youthere. As far as the other line item,roughly half of that is from the taking enough income from the aging of giftcards and the other half is associated with a currency exchange rate benefit,primarily from our British pounds denominated accounts. Again, our philosophyis to try to minimize the effect of currency rate fluctuations. And so at anygiven point, we will look at various hedging approaches and I can tell you thatin this case the result of that approach in that process was a small relativelynon-material benefit in the other line item.

We'll go next to Lauren Levitanwith Cowen & Co.

Good morning, Lauren. Lauren Levitan - Cowen & Co.: Good morning. A couple ofquestions for you. First related to international we hope you can see theopportunity for that to be both accretive and as a major growth driver. I amwondering if you referenced that we might hear an announcement soon about anadditional European opening, is there a chance that any of these stores wouldactually open in '08? And how about any additionalinternational websites in '08. And then separately on cash use, given therefresh program you're saying is largely behind you in some of these systemsinitiatives. Should we expect any different approach in terms of the minimumbalance that you'd like to maintain Mike and any change at all in theprioritization of where share repurchase falls into that use of excess cash?Thanks very much.

Okay, with regards tointernational expansion we'll -- with some of the sites eminent will there be a2008 opening? Yes, we are hoping so. We believe that we can impact the laterpart of 2008 and again stay tuned over the next couple of months and we'll letyou know there. With regards to the cash balance,our position really hasn't changed here in terms of the dollar amount that wewant and as well as the prioritization of repurchases. The prioritization ofour repurchases has been paramount. Has been number one with regards to --after we reinvest back in the business and I think that our Board and the Kauthorizing 10 million more also speaks to our bullishness with regards to thefuture of this company. Mike, do you have anything to add?

Nope.

We go next to Christine Chen withNeedham & Company. Christine Chen - Needham& Company: Thank you and congratulations ona good quarter. Wondering if you could talk a little about the shrinkage, wasit predominantly concentrated on improvements at Hollister or was it consistentover the Concepts and is there room for more improvement and regardingHollister wondering if there is any discrepancy in the performance of stores inA versus B model? Thank you.

Christine as far as the shrinkbenefit goes, it is primarily related to the Hollister stores, last year westarted a soft censor program replaced the hard funky censors that take a longtime to remove and it was an effort to quicken the transaction time and we didthat, we experienced a sharp increase in shrink and we obviously went back tothe old censoring technology after the first quarter of this year. So we are anniversaryingthat [sweetly] in the fourth quarter and to some extent in the third quarter,which provided us some benefit. And your next question was aboutHollister performance in A versus B malls, is that right. Christine Chen - Needham& Company: Right.

Yes, I mean we are not seeing interms of those malls performance relative to how they have historicallyperformed. We are not seeing any difference obviously we have got someHollisters in very high profile malls that attract a tourist and in many casesan international tourist and I think we have talked about those mallsperforming quite well over the quarter, but for the most part there hasn’t beena significant difference or it hasn’t been a significant variance inperformance from historical trends in those malls.

The variance is really primarilywithin all of our brands has been more geographic versus tiers.

We will go next Paul Lejuez withCredit Suisse. Paul Lejuez - Credit Suisse: Hi, thanks guys.

Hi Paul.

Hi Paul. Paul Lejuez - Credit Suisse: Hey. Couple of questions, can youtalk about fashion tops, what percentage of the business was that this yearversus last year. Where do you expect to see next year? Second any clue you cangive us and to what it cost you to open flagship internationally on a persquare foot basis and then Kramer, I thought you mentioned $5 million to $6million in one time items this quarter? Can you just remind us what that was?

You want to take the top.

Yeah, Paul I am not going to giveyou exact percentages. But, I can tell you that the fashion tops business hasgrown as a percent of total business this year. We have had a strong topsbusiness for the last couple of years. So, the difference wouldn't be asubstantial as you might think it would be. But, it has grown as a percentageof the business and it's grown particularly in the Women's fashion and infleece, which you think about more in a basic. But we have driven fleece towhat I would call more fashion-oriented fleece business in all of the brands,primarily in the female categories. In terms of the cost to openinternationally, obviously our flagships in terms of CapEx are more expensiveon a dollar per square foot basis. I am not going to into how much they are.But, I think that it's going to be relatively consistent with what we have seenon Fifth Avenue. In terms of the Hollisterinternational expansion again there are going to be more mall based. I thinkyou will see a little bit of an increase on a cost per square footage basis,but not significantly. If you are talking about pre-opening costs, thepre-opening cost if you will really just incur pre-opening rents, thosetimeframes can be different, depending on the build schedule, depending on thelocal authorities in terms of allowing us to go forward, as well as, thosepre-opening cost with regards to labor. And again, usually our pre-opening costwith regards to labor would be longer on our first store into the market, as wenewly enter our market, learning the cultures and we don't really have anyresources there to drop on, so it’s a little a bit longer than our second orthird as we start to penetrate more fully into the market. But those are thekey drivers that any of our pre-opening cost, I am not going to talk aboutspecific. In terms of the $5 million to $6million of onetime, there are two things that fell into that category, one waswe rode off some of our Christmas packaging that was not up to our standards.And we took a conservative approach from the P&L perspective royalties are,and we are taking a look at what we can do to recover some of that. But again,some of the Christmas packaging was not up to our standards and we take ourbranding very seriously here. The second piece here is reallyincreased expense in terms of the hard censor tags as you know, last year wewent to the censor tag, we censor tag program. And its basically reinvestingback and then and roughly $2 million related to that was over our normal runrate. Again, what I wanted to do is give you guys what I call more of a qualityof earnings excluding these onetime items.

We will go next to LorraineMaikis with Merrill Lynch. Lorraine Maikis - Merrill Lynch: Thank you. Good morning.

Good morning.

Hi, Lorraine. Lorraine Maikis - Merrill Lynch: You spent a lot of time in thecall talking about the international opportunities, could you also just refocusus on your store targets for Hollister and the Kids business domestically andif that's changed given the recent sales performance? Thank you.

Well, let me answer this way.Absolutely, not has changed based on our recent sales performance. Ourbusinesses are very strong and anything alluding to otherwise is kind ofcomical in my opinion. Our store strategy with regards to Kids and Hollisterdomestically is consistent to how it has been. We are taking look in terms ofthe kid's stores, we are taking a look at those malls that actually have theadult brand, and there is a high correlation in terms of the sales performanceof our kids with adults so we can predicate basically what the sales volumesthere are. So, it’s somewhat risk free, in terms of Hollister again, we’veindicated that this is an 800 plus store chain, we have a hit list thataccommodates for that, without negatively impacting our hurdle rate, which isvery high. So, our domestic strategy continues on, as one to add to that thereare some great malls that we have opened in recently for Kid stores,Burlington, Millenia, Natick, Fashion Show; Hollister, although, we’ve got over400 stores in Hollister, there is still some prime locations that we lookforward to being in and have gone in recently Westchester South Shore Boca. So,domestically we are very excited about opportunities for expansion for Kids andHollister.

And this will conclude ourquestion-and-answer session. I would like to turn the conference over to Tom Lennoxfor any additional or closing comments.

So, that will be it. Thanks forcalling in, have a happy Thanksgiving. Bye now.

This does conclude today'sconference. Thank you for your participation. You may now disconnect.