Eric Cerny - Manager of Investor Relations Jonathan E. Ramsden - Chief Financial Officer, Principal Accounting Officer and Executive Vice President Michael S. Jeffries - Chairman, Chief Executive Officer and Member of Executive Committee

Paul Lejuez - Nomura Securities Co. Ltd., Research Division Dana Lauren Telsey - Telsey Advisory Group LLC Stacy W. Pak - Barclays Capital, Research Division Jeff Black - Citigroup Inc, Research Division Robin S. Murchison - SunTrust Robinson Humphrey, Inc., Research Division Barbara Wyckoff - Credit Agricole Securities (USA) Inc., Research Division Erika K. Maschmeyer - Robert W. Baird & Co. Incorporated, Research Division Brian X Tunick - JP Morgan Chase & Co, Research Division Michelle Tan - Goldman Sachs Group Inc., Research Division Omar Saad - ISI Group Inc., Research Division Jeffrey P. Klinefelter - Piper Jaffray Companies, Research Division David J. Glick - Buckingham Research Group, Inc. Lorraine Maikis Hutchinson - BofA Merrill Lynch, Research Division Edward J. Yruma - KeyBanc Capital Markets Inc., Research Division Lizabeth Dunn - Macquarie Research Kimberly C. Greenberger - Morgan Stanley, Research Division Anna A. Andreeva - FBR Capital Markets & Co., Research Division Christine Chen - Needham & Company, LLC, Research Division Randal J. Konik - Jefferies & Company, Inc., Research Division Janet Kloppenburg - JJK Research Evren Dogan Kopelman - Wells Fargo Securities, LLC, Research Division

Good day, and welcome to the Abercrombie & Fitch Third Quarter Earnings Results Conference Call. Today's conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Eric Cerny. Mr. Cerny, please go ahead, sir.

Good morning, and welcome to our third quarter earnings call. Earlier today, we released our third quarter sales and earnings, income statement, balance sheet, store opening and closing summary, and an updated financial history. Please feel free to reference these materials available on our website. Also available on our website is an investor presentation, which we will be referring to in comments during this call. This call is being recorded, and the replay may be accessed through the Internet at abercrombie.com under the Investors section. Before we begin, I remind you that any forward-looking statements we may make today are subject to the Safe Harbor statement found in our SEC filings. Today's earnings call will be limited to one hour. Joining me today on the call are Mike Jeffries and Jonathan Ramsden. We will begin the call with a few brief remarks from Mike, followed by a review of the financial performance for the quarter from Jonathan. After our prepared comments, we will be available to take your questions for as long as time permits. I'll turn the call over to Mike. Michael S. Jeffries: Good morning, everyone. Thank you for joining us today. I ended my comments on our last earnings call by saying that there were greater challenges and uncertainty in the back half of the year, but that we remain confident in our strategy and in the underlying strengths of our brands. Clearly, our results for the third quarter were impacted by some of those challenges. Equally, however, our confidence in our long-term strategy and the strength of our brands and in our ability to create long-term shareholder value, in particular through our international expansion, is unchanged. So I would like to start this call by being very clear on 2 points: First, that our strategy is unchanged; second, that our financial objectives are unchanged. As you know, our strategic objective is to leverage the international appeal of our iconic brands to build a highly profitable, sustainable, global business. This means continuing to open highly profitable stores in Europe and beyond that, in Asia and other new markets. In the U.S., it means driving productivity back toward peak levels while closing underperforming and nonbrand-right stores. In direct-to-consumer, it means investing to drive greater penetration, particularly internationally, in this very profitable channel. With that, I would like to make some specific comments on our performance during the quarter. First, our European business. While slowly -- while slowing somewhat during the quarter, it is very robust and healthy by any objective measure. If anyone doubts that, I strongly encourage you to visit London, Milan or Paris to see firsthand what is happening in our flagship stores there or to visit our recently opened stores in Dublin, Paris, at the Wijnegem Shopping Center in Antwerp or at the Gallerian mall in Stockholm. In each of which, we are annualizing at over $10 million. Our London flagship remains highly profitable, second only to A&F Fifth Avenue in overall profit contribution but with a higher four-wall margin. The Milan and Paris flagships are not far behind. And just 2 weeks ago, we had another very successful flagship opening in Madrid. Just 3 years after we opened our first Hollister store in Europe, we now have 50 stores annualizing at well over $0.5 billion. In the U.K., our most mature European market for Hollister, four-wall margins were very strong while we continue to comp positively and opened 5 new stores during the quarter. We are proud of what we have accomplished in just a few short years in Europe, but more important, we are excited about the opportunity ahead of us. We are not immune to the macroeconomic environment, so we demand high profitability levels from our new stores based on conservative assumptions, and this underpins our belief in the long-term sustainability of our brands. If anyone is inclined to believe that a softening of our business in Europe, this quarter, in the face of severe macroeconomic headwinds is a major issue for our model, frankly, I think they are missing the forest for the trees. In Asia, we are very pleased with our first Hollister store opening in Hong Kong, which is also tracking to be over a $10 million store. We remain excited about our first openings in mainland China during this quarter. Turning to the U.S., our tourist stores also remain robust, with Florida particularly strong. Within the U.S. promotional chain stores, we have chosen to keep our focus on driving productivity, and we were effective in doing that during the quarter. To do this, we chose to keep our AURs down in these stores, which combined with double-digit AUC increases, put significant pressure on our gross margins in excess of the expense leverage we achieved. We expect that pressure to reverse in the next few quarters, with trends on both AUR and AUC improving and with the benefit of additional store closures. Turning to DTC. Our strong overall growth was driven mainly by the U.S. Looking to 2012, we are highly focused on driving faster growth in our international business. As part of this, we have recently initiated fulfillment of European DTC sales from our third-party distribution center in the Netherlands. We continue to expect that we will drive strong profitability growth from each of these channels and improve our operating margins by growing our home office and other central expenses at rates well below the overall rate of sales growth. In conclusion, I would like to reaffirm that our strategy is very much on track. We have always said that we are not immune to the macroeconomic environment, but we are very confident that the quality, commitment to standards and pursuit of excellence on which our business is based stand us in very good stead to weather external impacts to our business. I'll now turn it over to Jonathan, but we'll be happy to take your questions later. Jonathan E. Ramsden: Thanks, Mike, and good morning, everyone. As Mike noted a moment ago, we struck a note of caution on our Q2 earnings call with regard to macroeconomic and currency uncertainty, which allied with the effect of pricing changes gave us less visibility than in prior quarters. As the quarter progressed and particularly from early September onwards, it became clear that some of these factors were affecting our business. Our EPS for the quarter was up only slightly from last year with a reduced contribution from our U.S. chain business, offset by less of a tailwind than we had anticipated from our European business. However, our year-to-date EPS is up 86%, excluding discontinued operations, and approximately in line with our original budget. In addition, as Mike indicated, there is no change to our $4.75 EPS objective for next year. Coming back to the third quarter, sales for the quarter increased 21% to $1.076 billion; U.S. sales, including DTC, were up 14%; international sales were up 56%. Overall, DTC sales, including shipping and handling, were up 41%. Comp store sales increased 7% across all brands. Men's and women's comps were similar. Foreign currency changes accounted for approximately 55 basis points of the sales increase based on converting prior year sales at current year rates. Relative to our initial budget for the quarter, FX affected sales negatively by around $6 million. Our gross margin rate for the quarter was 60.1%, down 360 basis points from last year. This reflected significant erosion in our U.S. chain store gross margins as we chose to keep AURs down at the same time that AUC was up significantly. Overall, AUR was approximately flat for the quarter. Turning to operating expenses. Stores and distribution expense for the quarter included store occupancy costs of $178 million lower than our guidance, driven by changes in possession dates and foreign currency. All other stores and distribution costs represented 26.4% of sales and delevered somewhat more than expected due to lower sales. As a reminder, stores and distribution expense for the quarter included approximately $4 million of accelerated depreciation from our DC consolidation. MG&A expense for the quarter increased 5% better than our double-digit growth guidance, primarily due to lower incentive and equity compensation. MG&A for the quarter include total equity incentive comp of $14.1 million versus $15.6 million last year. For the quarter, we achieved approximately 220 basis points of expense leverage. Overall, operating income was flat for the quarter, with profit growth from international stores and DTC, offset by lower profits in our U.S. chain stores and higher MG&A and other non-four-wall costs. The tax rate for the quarter was 35.8%. On a full year basis, we expect the rate to be around 35% or slightly below, although it remains sensitive to the U.S. international mix. Diluted EPS for the quarter was $0.57. Turning to the balance sheet. We ended the quarter with total inventory of costs up 33% versus a year ago or up 26% excluding in-transit. We expect inventory to be up by a greater percentage at year end, and this includes the effect of fourth quarter new store openings. During the quarter, we repurchased approximately 150,000 shares at an aggregate cost of $8.8 million. We ended the quarter with $488 million in cash and equivalents compared to $593 million in cash and equivalents at the comparable point last year. This number reflects buybacks and dividends of approximately $207 million in the past 12 months and the paydown of $57 million in revolver debt. In addition to which, we have eliminated substantially all outstanding letters of credit. While we took a more conservative approach on buybacks this quarter, the general parameters we have discussed in the past continue to apply going forward. To add some color on our operating performance for the quarter, our international stores have overall four-wall margins of greater than 30%. Both our margins and return on investment in Europe remained very strong. A&F international flagships comped negatively, but significant AUR increases protected the gross margin rates in these stores. Japan and Canada both had declines in operating income as a result of negative same-store sales, with Japan down significantly. Turning to expectations for the fourth quarter, we expect gross margin rate erosion similar to that in Q3. Some more specific guidance on fourth quarter expense projections is included in our investor presentation. This expense guidance excludes the impact of any potential impairment charges resulting from our annual review of long-lived assets and other potential charges associated with additional store closures or other underperforming real estate. Store occupancy costs for the fourth quarter are expected to be in the mid-$180 million. All other stores and distribution costs are expected to be approximately flat as a percentage of sales to last year. MG&A expense for the fourth quarter is expected to be approximately flat to last year. Our plans for store openings in the year remain in line with prior guidance. We expect to close approximately 55 to 60 U.S. stores during fiscal year through natural lease expirations, but the overall number of closures may increase as a result of buyouts or other early closures. We continue to expect total capital expenditures for 2011 to be approximately $350 million. Turning to 2012, our roadmap to the $4.75 in EPS includes a similar or somewhat greater number of Hollister openings as compared to 2011, which is a rate we expect to maintain in subsequent years. With regard to flagships, we are announcing today that we are adding Amsterdam and Munich to the list of confirmed 2012 openings. These openings are in addition to the previously announced Hamburg and Hong Kong A&F openings. We expect to confirm additional openings on our February earnings call. We will provide more detail on the components of our $4.75 objective for 2012 on our February earnings call. However, the key components of the store opening plans referenced a moment ago, the goals for U.S. store productivity we have discussed in the past, including modest AUR increases for 2012 and sourcing cost assumptions based on our current visibility into 2012. We are not modeling in any closures beyond the national closures I talked about a moment ago, although we are hopeful that we will derive some benefit from additional closures. This concludes our prepared comments section of the call. We are now available to take your questions. Thank you.

[Operator Instructions] And we'll take our first question from Jeff Klinefelter with Piper Jaffray. Jeffrey P. Klinefelter - Piper Jaffray Companies, Research Division: My question, I guess, Mike, would be -- or Mike and Jonathan, would be around Europe, and maybe providing a little bit more of your thoughts on the trends by different region, by the concept between flagships and Hollisters. I mean, I think that probably the #1 question about this $4.75 target in addition to the inputs you already described, Jonathan, would be what sort of assumptions about Europe would be included in that, and help us understand kind of the puts and takes and what kind of flexibility you have to navigate toward that number, if Europe doesn't trend the direction that we all hope it does? Jonathan E. Ramsden: Sure, Jeff. I think that's a great question. I think, first of all, I think it was very clear from Mike's comments and also from mine that our Hollister Europe business is in extremely good shape. We grew the top line while we were adding new stores. At least one of which, the new Stratford mall in London probably cannibalized a little bit from the other London stores since it's a new model. But we opened 19 Hollister stores during the quarter. Five of them opened right in the last week of the quarter, so it's frankly too early for us to talk about those. But of the other 14, 12 of them are running ahead of the projections, and those projections are tied to that 30% four-wall margin that we've talked about. For all of the 40 stores we expect to open this year, we expect them to average around $10 million in annualized volume based on the current run rate of those stores, which is after that step-down that we've seen in the last couple of months in terms of the deteriorating trend in Europe. So we feel extremely good about the Hollister business in Europe. As one of our board members said earlier this week, it's practically gravity defying when you look at all the other news that's coming out of Europe now that we're continuing to actually grow the productivity of those stores. And Mike talked about Dublin where we opened a store that it was doing unbelievably well in an environment that's, obviously, particularly difficult in Ireland, but we're seeing that elsewhere as well. I think if you look at the mix of stores that opened this quarter, some of them -- a couple of them were in Canada, a couple of them were in the eastern part of Germany where the productivity of those store is somewhat lower than we would see in the west of Germany. We had a couple in Spain. So the average productivity of the stores we happened to open this quarter is probably lower than the average productivity we've talked about over time. But if you look at where we are today, with the 50 stores we have opened, we're saying they're running at over $0.5 billion and averaging over $10 million. And as you recall, we've said in the past that to get to our overall goal for Hollister of $1.5 billion by 2015, those stores only need to average a little over $8 million. So we're running well ahead of that today and, frankly, more ahead of that than we would have thought 6 months ago, even though we did see a softening in the last couple of months. So Hollister is in phenomenal shape. The A&F flagships did step down, too, and they've been moved into negative territory. Again, I think you've got to put that in an historical context. Those stores did phenomenally well for several years. We've always said it wouldn't be surprising given how well many of these stores have opened that we would go through a period when there would be some negative comps. Clearly, the macroenvironment is very difficult in Europe. Tourism has slowed down. We've certainly seen a slowing of traffic into those flagship stores, which is indicative of a macro issue. We're continuing to dig into other potential components of that. But again, to reiterate, the absolute profitability of those stores is extremely high. Our model has always been to say we're going to go out and open profitable stores based on conservative assumptions. And even if we comp negatively, we still have a very deep profitable model, and we're not going to get oversaturated, but we're going to keep moving on to new markets to drive the top line and to keep sustaining that high four-wall growth. So that was kind of a long-winded answer to your question, but I think we've covered a lot of important points. Jeffrey P. Klinefelter - Piper Jaffray Companies, Research Division: So Jonathan, are you suggesting that at this point, the run rate of Europe and the U.K. could essentially continue as it is into next year and that, that would be incorporated into your $4.75 target? Jonathan E. Ramsden: Well, we have a run rate for the stores that are opened today, which is reflective of the current state of the business and trend of the business. For the new stores that are opening, we tend, as Michael alluded to earlier, to put somewhat conservative projections on them -- well, projections we assume are conservative. So if we look at those new stores, relative to the new -- to the stores we have opened and the volumes we have assigned to them, those volumes, if anything, conservative relative to the volumes of the stores we have opened today in terms of what they're actually delivering in terms of productivity.

And next, we'll go to Randy Konik with Jefferies. Randal J. Konik - Jefferies & Company, Inc., Research Division: Quick question. Did you say -- I just want to clarify, did you say that you think the AURs will start going up in the future quarters? Is that starting in the fourth quarter? And is that a total company comment or -- and can we give it a little clarity, would that also be at both brands, Abercrombie and Hollister? And then if the AURs are going up, is that a reflection of any pricing strategy changes or just being less promotional? Michael S. Jeffries: Let me kick that off. I think we have to say that central to this conversation is that we think we drove the AURs too low in U.S. promotional stores during the third quarter. We think we left dollars on the table. This goes into our thinking about getting AUR increases go forward. Jonathan can comment about when, but we're very convinced that we were going to be able to see AUR increases. Jonathan E. Ramsden: Randy, the comment on AUR was specific our U.S. chain business where to get to those productivity goals we've talked about in the past, we're saying embedded in that for 2012 is the assumption of a modest increase in AUR in those chain stores. Randal J. Konik - Jefferies & Company, Inc., Research Division: So that'd be a function of both Abercrombie and Hollister, you expect a less promotional posture at both businesses? Michael S. Jeffries: That's correct.

And next, we'll go to Stacy Pak with Barclays Capital. Stacy W. Pak - Barclays Capital, Research Division: So a couple questions. I guess, first of all, just on the AUC visibility. Could you comment on when you see it coming down and how much? And then, I guess more fundamentally, circling back to the flagships, help me understand if the brand is so strong internationally, and I totally get the macro, why did 15% price hikes lead to negative comps in those 2 beautiful flagships? Is it how they opened so strong and maybe want to compare it to New York and you don't comp forever? Or how do we sort of think about that? And how do we not come to the conclusion that those stores continue to comp negatively and the story isn't what we thought? Michael S. Jeffries: Let me start with the second part of that conversation because I think the conversation that the 15% price increases caused the decrease, I don't know if that's true. I don't really believe that's true. I believe what's happened to the flagships are totally a function of the macroeconomic situation. Tourism down; we see it on a day-to-day basis in those stores. Those stores are terrific. They're popular and we're -- continue to be, and you can see that, Stacy. So I can't predict where this is going to go because I can't predict the macroeconomic environment, but those stores are very vulnerable to what's going on in macroeconomy, tourism. To address the first part of your question, we say that the AUCs will be coming down the second half of the year. That will start in second quarter. I can't tell you what level that will be. Stacy W. Pak - Barclays Capital, Research Division: Okay. Is there any way to quantify -- I don't know if you want to tell us what those flags are comping or the level of reduction, or anything along those lines to help sort of help our -- get our arms around it? Jonathan E. Ramsden: Stacy, we've never gone into a specific store level detail on that. I mean, I think the important point is that the profitability of all those stores is very strong. All 3 doing four-wall margins are greater than 40% or 40% or greater. And that's really the key that we -- we're going to protect the profitability of those stores. But we haven't spoken to individual stores in terms of comps in the past. Stacy W. Pak - Barclays Capital, Research Division: Okay. And last thing, you are going to take prices down there in Q1 as well in the flags? Michael S. Jeffries: We are looking at the prices on an item-by-item basis. I would say they will come down, I can't tell you how significant that's going to be. Jonathan E. Ramsden: Stacy, if I could just add one comment on the AUC thing. I think one thing's evolved over the last few months is that we now have better visibility on the back half of the year. And at one point, we certainly didn't have visibility that we were going to be down, as Mike said, from mid-second quarter onwards and we have that visibility today based on where we are in the cycle of planning for 2012. Stacy W. Pak - Barclays Capital, Research Division: Do you think it's down mid-singles, Jonathan? Jonathan E. Ramsden: I guess, like I said, we can't comment on the specifics. Michael S. Jeffries: Good try.

And next, we have Evren Kopelman with Wells Fargo. Evren Dogan Kopelman - Wells Fargo Securities, LLC, Research Division: I wanted to ask about the inventory, it's such a big swing from end of Q2 to Q3 from up 7 to up 33, and you're talking about higher at the end of Q4. Is -- so the question is, is that -- are inventories higher than you would like at this point? And does that have anything to do with your level of promotional cadence in the U.S. in third quarter? You said maybe you drove AUR down a little too much in Q3. If you can share the thinking behind kind of why maybe you did that, what was the thinking and if that had anything to do with the inventory, and why inventories swung so much? Jonathan E. Ramsden: Well, one thing to -- one thing to remind you of is that on the last earnings call, we said that we were lower in spring carryover inventory than we would have liked to have been, so that number was a little bit artificially low at the end of the second quarter and lower than we would have liked. If you look at where we are the end of the third quarter, it's pretty close to the trend of sales, particularly when you take into account the stores that have opened later in the quarter, and we have a lot more openings in the fourth quarter, including some big flagships. So I think, overall, we're pretty comfortable with where we are in inventory.

And next, we have Janet Kloppenburg with JJK Research. Janet Kloppenburg - JJK Research: Mike, a couple of questions about the flagships. I know that you said that you don't think pricing is the issue. I'm wondering if you think the mix of product was an issue. Perhaps there was a skew to some of the higher-priced cashmeres and outerwear, and if there's any changes to that mix as we go into the fourth quarter. And also on the flagships, is there anything you're contemplating with regards to Japan and Canada that you could do to offset some of the declines you're witnessing there? And Jonathan, if you can give us an idea about how we should be thinking about inventory on a comp store basis, that would help a lot. In other words, you're opening a lot of stores here in Q4. You opened a lot at the end of Q3. So I'd like some delineation to give us a better handle on that. Michael S. Jeffries: Janet, the AUR increase in the flagships, it is a complex issue because mix is involved. We're studying this very hard. Clearly, in our whole business, we mix to fourth quarter to more outerwear because we're heavily invested in outerwear. We're heavily invested in fur, sherpa, et cetera, which skews the AUR higher. Cashmere is not an issue in flagships because we don't have very much of it and we don't sell very much, but there is a mix issue. It's not clear to me at this point that, that has affected us in the flagship volumes. We're studying it very carefully. It's not clear. My first instinct is that, that's not been the problem, and we're looking at a lot of statistics. But having said that, we're being more careful with the mix and the AUR going into spring in case that's not true. Janet Kloppenburg - JJK Research: Mike, are you seeing any cannibalization of Hollister to the A&F stores in Europe at all? Michael S. Jeffries: Of A&F... Janet Kloppenburg - JJK Research: Hollister openings affecting the flagships. For instance, in Milan, you've got a couple of Hollister stores now around the Milan flagship, same with London, more Hollister openings. Could that be affecting the A&F flagships? Michael S. Jeffries: That's very astute. Some, and there's some cannibalization of flagship to flagship. When we opened in Paris, we're hit by a significant number in the London flagship. I don't want to overreact to this because I think it is normal. We've expected it, but we're reacting as if that's not happening and we're running the best business we can because of it. But that is a very, very astute question. Janet Kloppenburg - JJK Research: Okay. So it's something you're examining and it's something that you've contemplated in your $4.75 guidance? Michael S. Jeffries: Absolutely. Janet Kloppenburg - JJK Research: Okay. And Jonathan, on the inventory? Also if you guys could address the Canada and Japanese flagships and what you might be doing to stem some of the profitability losses there. Michael S. Jeffries: Let's go to Japan. In Ginza -- we have 2 stores in Japan, as you know. In Ginza, we are redoing or eliminating an offsite stockroom, bringing it on-site which will absolutely improve the profitability of that store. That's our focus. Fukuoka is a problem store that we would rather not have, and we're working to that end.

And next in queue, we have Liz Dunn with Macquarie. Lizabeth Dunn - Macquarie Research: So I guess, just a couple of points of clarification. In terms of the plan to increase AURs going forward or the comment that the third quarter got a little too low in the U.S., does that mean that you'll be looking for a moderation in the comps and more gross margin going forward? I mean, how do you sort of weigh the acceleration that you saw in the U.S. business in the third quarter with, obviously, your thoughts that prices weren't appropriate? And then just a follow-up on your comment regarding buybacks. You said you didn't buy back that much in the third quarter, but you'd get back to normalized levels. What does normalized levels mean? Does that mean you'll look at that $350 million minimum cash balance that you like to run with and be more aggressive about buying back above and beyond that? Jonathan E. Ramsden: Yes, let me take the second part first. Yes, the parameters for buybacks are what we've said in the past. We're not going to go -- or we don't have any plans to go below that net $350 million cash footprint. We plan to, at least, offset equity plan issuances, and where we end up between those 2 guardrails will depend on market conditions. And if we see opportunities to buy stock at prices which we think are attractive, lined up with those other factors, then we'll continue to do that. In terms of the AUR, I mean one important distinction is that the comment we made about modest increases again was a reference to the U.S. chain stores. As Mike alluded to a second ago, in the flagships, we're likely to be going the other way that the increases will be somewhat less in the spring than we've had in the fall. But baked into our objective to hit those productivity goals, we've talked about the U.S. chain stores in the past, is the assumption that we would get to somewhat modestly positive AURs in 2012. Lizabeth Dunn - Macquarie Research: But do you expect that to have an impact on your comp because one of the points of good news in the third quarter was the acceleration in the U.S. business? But if you said it came at a cost that, that was -- that's not sustainable going forward, how do you feel about your ability to drive the U.S. business if prices are coming up? Michael S. Jeffries: Very good. As I said, we think we left dollars on the table and we really gave some margin away. We will continue to drive productivity in the U.S. stores, and we think we could do so with a little moderation in the AUR. Jonathan E. Ramsden: And just to add to that, Liz, we are assuming some moderation actually in the comp rate in 2012 for those U.S. chain stores relative to what we've been running the last couple of quarters.

And next, we have Brian Tunick with JPMorgan. Brian X Tunick - JP Morgan Chase & Co, Research Division: I guess, first on the international side. I guess, Jonathan, so on those four-wall margins that you talked about, I think we'd like to know what kind of comp declines would it take to really impact that cushion you have on those returns. And then maybe, Mike, just talk a little more about the U.S., particularly, in that sort of more value space that Hollister operates in. What are you thinking as you look at the landscape right now, as we head into holiday and next year? And sort of again, what gives you that confidence that you can maybe get some more price? It just seems very competitive in that space. Jonathan E. Ramsden: Brian, I guess on the first part, it's sort of hard to generalize because every store is different and some of them beating their original projections more than others. But as a reminder, when we approve a new store, we approve it based on what we think is a conservative volume and with a couple of exceptions for brand-new markets where we have less visibility. It needs to, at least, be achieving that 30% four-wall for Hollister, and we typically look for it to be somewhat higher for a flagship. As you know, and as we've discussed in the past, generally those stores have run well ahead of those initial projections. They've comped positively after running ahead of the projections. So on average, we have a significant amount of room for those productivity levels to come down and still be operating at very healthy four-wall margins. But it's hard to generalize about that given that it could vary store by store. Brian X Tunick - JP Morgan Chase & Co, Research Division: Is there a maturity curve that you've seen at these Hollister stores that have been opened now 2 or 3 years that maybe you can share with us? Jonathan E. Ramsden: Not really. I mean, there's no sort of clear path in there that we can point to. What we can say, they peak after a certain period of time. I don't think we can say a lot at this point. Brian X Tunick - JP Morgan Chase & Co, Research Division: Okay. And then how about, Mike, just some thoughts on the U.S. value channel. Michael S. Jeffries: I think it will continue to be a promotional business. Why do I have faith that we'll continue to do well there? I think that we look very good for Christmas. I think -- let's get back to basic merchandising, I think we're invested in the right categories and the right depth, and we'll see what happens.

And next, we have Jennifer Black with Jennifer Black & Associates.

I have a couple questions. My first question, I am curious, Mike, graphic tees have been soft for a number of retailers, and I wondered what your thoughts were and your thoughts about logos. It seems like kids don't want to wear huge logos. And then I also wondered if you could talk about -- you have a significant cash position and would you consider making an acquisition of an established competitor like with the likes of somebody like Jack Wills? Michael S. Jeffries: Let's talk about logos. Logos are an ongoing part of our business. We constantly try to make them more subtle. We constantly try to promote left chest icons and less aggressive logoing. It's been part of our business concept for a long time. Having said that, we continue to sell logo wear. Although graphic tees are relatively weak, fleece is relatively strong and fleece is a logo business. So the conversation about kids don't want to wear logos anymore, I've heard that for a long time, but the fact is they want to continue to wear logos. But it's a good question. Jonathan E. Ramsden: I guess on the second part, Jennifer, we think we've got a long runway with our current strategy, and we think the return on investments from investing on our own growth is going to be the greatest return we can get for our capital certainly for the foreseeable future.

Great. And could you also give a little bit of color on Gilly Hicks? Michael S. Jeffries: I think Gilly Hicks is doing very well. It's on track. It's on our roadmap track. I think we're continuing to make progress in the bra and underwear category, which is where we've set our goals to become very good. I think that positioning of the brand has gotten clearer. It is clearer who the target customer is or taste levels for aspirations. And I think you can see that in the stores today.

[Operator Instructions] And next, we go to Anna Andreeva with FBR. Anna A. Andreeva - FBR Capital Markets & Co., Research Division: Could you talk about performance of your flagships domestically, just any change that you're seeing there versus the second quarter? I was hoping you could also address a performance of your tourist stores in the U.S. Have you guys seen softer environment there at all? Jonathan E. Ramsden: The tourist stores held up very well during the quarter. We saw a little bit of a softening in Fifth. Not as much, frankly, as we've seen in the European flagship stores. But in general, the U.S. tourist stores held up very well from a comp basis and from a profitability standpoint. And I think, as you know, as we talked about in the past, if you look at our top tranche of stores, they've generally outperformed the chain stores consistently over time and have remained very profitable and comparable to the profitability we've seen in Europe, and there's no change to that overall picture. Anna A. Andreeva - FBR Capital Markets & Co., Research Division: Could you also talk about the impact from the store closures that you guys are seeing domestically? Just our understanding has been there's only a minimal impact to four-walls, but you are seeing productivity at adjacent stores improve. Is there maybe opportunity to accelerate some store closures in 2012? Jonathan E. Ramsden: Well, the first part of it, we closed 65 stores last year, and I think we'd said that the average volume of those stores is about $1 million. Depending on where those stores, where we've now got a decent data read on how much of that volume transferred to other stores in the same model or to nearby stores of the same brand, and that's something we're now using to look at future potential store closures. On the second part of the question, I think as we clearly alluded to in our comments, we are looking at the potential for additional closures beyond the natural lease expirations that we talked 55 to 60 range.

And next, we have Christine Chen with Needham & Company. Christine Chen - Needham & Company, LLC, Research Division: I was wondering when you talk about maybe pulling back a little bit on promotions, will that be in the format of offering fewer category promotions, less percentage off entire purchase or being strategic about excluding more stores year-over-year from the promotions? Michael S. Jeffries: I don't think we can really comment on this, Christine, because it addresses our strategy. We'd love to, but we can't. Christine Chen - Needham & Company, LLC, Research Division: Okay. And then I also wanted to ask, what do you think is happening in Canada? I mean, the other retailers have also called out Canada as a little weaker. Is there something specific you think that's happening in Canada? I mean, we all know what's going on in Japan. Michael S. Jeffries: We wish we could tell you about Canada. We are looking at Canada in great depth. We are about to run some significant tests. We honestly don't know.

And next, we have Dana Telsey with Telsey Advisory Group. Dana Lauren Telsey - Telsey Advisory Group LLC: Can you talk a little bit about the U.S. core business getting back to peak domestic levels of productivity? How do you see the runway for that, whether it's on product? And also just give us an update on men's and women's, and anything on the cost side, even with store expenses that you see is an ability to get you there. Jonathan E. Ramsden: I guess, just to recap on what we said on that, Dana, in overall terms, we've said that roadmap is to get back to 90% or slightly greater of peak productivity by next year and we've said that, that would require us to sustain the chain store comps that we saw in the first half of this year. We accelerated a little bit above that in this quarter. So we can afford, as I said a second ago, for that U.S. chain store comp to come down a little bit and still hit our goal in 2012. Well, that's what is baked into our plans at this point. I guess, men's and women's, we said comp similarly for the quarter. I'm not sure there's really much else we can add in terms of color on the chain store comp. Michael S. Jeffries: I think there's an indication that our content is good, our men's and women's business is balanced. So we're not counting on a particular category or one or the other to drive improvement to this number.

And next, we have Edward Yruma with KeyBanc Capital Markets. Edward J. Yruma - KeyBanc Capital Markets Inc., Research Division: Can you give us a quick update on Gilly Hicks, particularly, as it relates to your international operations? Jonathan E. Ramsden: Ed, I think, Mike just talked a little about Gilly. With regard to international, we haven't been specific on that. We have the one store in London, which opened a year ago. We are opening in Germany with Gilly in December, and that will be our second international store. We haven't spoken more broadly about that. Michael S. Jeffries: And we're opening another U.K. store in Cardiff in December. But that's all we've announced.

And next, we have Paul Lejuez with Nomura. Paul Lejuez - Nomura Securities Co. Ltd., Research Division: Anything that you guys are seeing now whether it be macro or the cannibalization, Mike, that you spoke of, that makes you rethink the right number of flagships to be opening each year? And also wondering on the flagship, you said it was seemingly a transactions issue and a traffic issue, but I'm wondering what happened to average ticket or UPTs in the flagships in London and Milan. Jonathan E. Ramsden: I guess on the first part of the question, Paul, we don't have any change to the plans of the overall number flagship locations that we've talked about through 2015, some of the individual locations may move in and out. But in total, we don't foresee any change to that based on anything we've seen. So I think that answers that part. I think in terms of the average ticket in London and Milan, we typically don't get into that level of detail. So I'm not sure there's much else we can tell you on that.

And next, we'll go to Barbara Wyckoff with CLSA. Barbara Wyckoff - Credit Agricole Securities (USA) Inc., Research Division: Can you talk about specifics on the mainland China opening in fourth quarter, I think there in Beijing and maybe Shanghai? And then just talk about the holiday 2010 timing of the product flow. Jonathan E. Ramsden: Sorry. Yes, I guess we have -- we're going to have 3 openings in China in the fourth quarter. One of them is in Shanghai and the other one is in Beijing to your point. Clearly, this is our first step into mainland China, so we're very interested to see what happens there, and frankly, very excited about the openings. But there's really not much else we can tell you until we've actually opened those stores. Michael S. Jeffries: And the second part of the question, Barbara, I didn't understand that, holiday product flow? Barbara Wyckoff - Credit Agricole Securities (USA) Inc., Research Division: The product flow. When you flow in goods for -- typically, you flow in before Black Friday and one right around Christmas to capture gift cards. Is that about the same as last year? Michael S. Jeffries: We've set the holiday set, that was 3 weeks ago. We will be flowing more product into the stores December week one. That's the last Christmas flow, holiday flow.

And next, we have Michelle Tan with Goldman Sachs. Michelle Tan - Goldman Sachs Group Inc., Research Division: I was wondering if you could talk a little bit about the flexibility that you have to manage the macro issues in Europe and Asia. How do you manage inventory levels in those stores? And what flexibility do you have on the expense line? Jonathan, it looks like you're expecting better performance on stores and distribution, non-occupancy stores and distribution in Q4 versus Q3. So I'm curious if that's you managing variable expense at all or what flexibility there is in that line item. Jonathan E. Ramsden: Yes, I guess on the last part, Michelle, I think it's probably just a function of scale and the impact of the additional volume we're adding in Q4 is helping with that. But we continue to look very hard at all expenses and then we've been looking very hard at expenses into 2012, particularly preopening expense. That was a number we'd called out earlier in the year as being very significant for '12, and that does look as though it's going to be quite a bit lower than we'd originally thought. But in general, we're continually looking to be as efficient as we can from an expense standpoint. I'm not sure there's really much else we can say on that. In terms of inventory in Europe and Asia, in Europe, we do have the ability to bring inventory back from Europe to the U.S. if we need to. So that gives us some ability to manage around that. And obviously, we can all send it the other way if the situation is reversed. So we do have flexibility around that.

And next, we have Omar Saad with ISI Group. Omar Saad - ISI Group Inc., Research Division: The macro issues in Europe were obviously hitting a lot of the companies that we follow. You're certainly not alone in that respect. Although, one interesting thing that we've been hearing is that for some of these brands that are big in Europe, there's been a dichotomy between the secondary European markets and the big flagship tourist, gateway markets, whatever you want to call them, where the business is held up a little -- a lot better. And I wonder for you guys, because obviously that's where your key flagships are, does that reflect maybe you're not getting as much of the Chinese or Asian tourists in Europe as some of these luxury brands are? And does that reflect perhaps that the brand is still not as well known in Asia, or does the brand maybe doesn't translate as well in Asia? Just any thoughts around that in terms of how you think about it. Jonathan E. Ramsden: I mean, I think, and I think we talked about this in the past, the level of penetration of Chinese and other Asian customers in our flagship stores is probably lower than some of our -- some of the other brands you're thinking of. So I think we would regard that as an opportunity as we have greater awareness in China and through Asia of the brands. Michael S. Jeffries: But I think that's a very astute question. I think that's correct. But it's -- we believe it's an awareness issue, not a relevance issue.

And next in queue, we have Kimberly Greenberger with Morgan Stanley. Kimberly C. Greenberger - Morgan Stanley, Research Division: Mike, I'm wondering if you can just talk to us about your philosophy on how to manage your U.S. chain stores to a higher productivity level. In other words, if you start to pull back on some of the promotions and you see that comp run rate turn flattish or even slightly negative, do you have a sort of backup plan where you're willing to compromise a little bit on your gross margin rate to continue to drive that productivity higher? Or are you rather prioritizing getting a better margin, merchandise margin out of those stores? If you could just help us understand your approach, that would be great. Jonathan E. Ramsden: I mean, clearly, our focus this year has been on driving the productivity, and we kept the foot on the pedal this quarter. And I think as we implied in some of our other comments, our focus is going to be more now on getting the gross margin rate back up in those U.S. chain stores in 2012 through a combination of modest AUR increases and then the costing benefit that we're expecting to see in the back half of the year, allied with some benefit from closures.

And next, we have Erika Maschmeyer with Robert W. Baird. Erika K. Maschmeyer - Robert W. Baird & Co. Incorporated, Research Division: Just following up on that, could you talk a little bit more about your gross margin assumptions for Q4 in terms of AUR and AUC given that you will -- are planning on being incrementally more focused on gross margin versus productivity? And then also just a follow-up on your European stores or international stores, could you give us a sense of what London, Tokyo and Milan are annualizing now? I think you've said over $200 million in the past. And I know you won't comment on individual stores, but could you also give us a sense of the magnitude of your European A&F flagship comps as a group? Jonathan E. Ramsden: On the first part of the question, the comment on gross margins is looking into 2012 for the fourth quarter, as we said on the prepared comments, we're anticipating similar gross margin rate erosion to Q3. But I can't really break that out between AUC and AUR. We're not -- that's not a level of detail we can go into. In terms of London, Tokyo and Milan, they're not far off that same $200 million number we gave 1.5 years or so ago.

And next, we have Lorraine Hutchinson with Bank of America. Lorraine Maikis Hutchinson - BofA Merrill Lynch, Research Division: I just wanted to follow up on some of the earlier inventory questions. I know there's a lot of noise around store openings this quarter and next quarter. If you exclude that, can you just maybe talk about the run rate and how you're planning your inventory for existing stores? Jonathan E. Ramsden: We, obviously, planned for all of the different components of our business in terms of the overall level of inventory. I guess, I'm not really sure what else we could tell you about the specifics of that. When we look at the higher rate of inventory increase at the end of the year, that takes into account the run rate of our like stores, as well as the inventory we need to add to support DTC and support clearly the international stores. I'm not sure there's really much else we can really add to that. But it's a very detailed planning process we go through to determine those inventory levels.

And next, we have Robin Murchison with SunTrust Robinson Humphrey. Robin S. Murchison - SunTrust Robinson Humphrey, Inc., Research Division: Jonathan, just want to check and see if there's anything else you might add to cost that you're watching in the new year, upward, downward impact other than raw material. Jonathan E. Ramsden: For 2012, Robin? Robin S. Murchison - SunTrust Robinson Humphrey, Inc., Research Division: Yes. Yes. Jonathan E. Ramsden: Well, I mean, clearly, the big year-over-year favorability from middle of second quarter onwards is going to be in the cotton raw materials piece. So I think the other pieces, as we said in the past, still moving upwards including labor costs and the effect of the time of the currency. But we now have visibility on the impact of the raw materials piece year-over-year to have the confidence, as Mike said earlier, our year-over-year opportunity cost is going to be actually down, netting those different effects.

And next, we have David Glick with Buckingham Research Group. David J. Glick - Buckingham Research Group, Inc.: Perhaps I missed it, but could you tell us, Jonathan, what the aggregate international comp was in the third quarter, we know the flagships are negative and Hollister, positive. I'm just trying to get a sense of how that aggregates and the type of assumptions you are factoring in on the international comp side heading towards that $4.75 goal in 2012. Jonathan E. Ramsden: We haven't given an aggregate comp number, David, and frankly, I'm not sure how meaningful it is. You've got a lot of different moving parts in Japan and Canada or in the flagships and Hollister in Europe. And it's also still -- some of those pieces are on a pretty small base. So that isn't something we've broken out. Broadly speaking, in terms of looking forward, when we look at our non-promotional stores, we are assuming a, certainly a lower comp rate than we are for the chain stores for 2012 baked into that $4.75 objective.

And we'll take our final question from Jeff Black with Citi. Jeff Black - Citigroup Inc, Research Division: So Jonathan, on the flagships, on the 2 flagships that are comping negative, if you annualized that, are they still at 40% run rates? What is the profit, four-wall profit of those 2 stores if we just assume now those through the end of the year? And on Japan, where is the four-wall there? And is any improvement baked into the assumptions of the $4.75 or no on that one? And finally on the domestic AUR, can you tell us what the domestic AUR was in terms of decline for 3Q? Jonathan E. Ramsden: Jeff, on the first part, we really don't, again, get into the specifics of individual stores. I think, as I alluded to earlier on, all 3 stores are running at 40% or greater four-wall during the third quarter. I don't think there's anything else we can really add on that. In terms of any improvements in -- the Japanese four-wall is, clearly, significantly lower than that. That's something we're working on, as Mike talked about. We haven't baked in any improvements relative to what we're currently seeing in Japan. And then I think I missed the third part. Jeff Black - Citigroup Inc, Research Division: Domestic AUR, what was it down in 3Q just on the domestic base? Jonathan E. Ramsden: Again, we haven't broken that out specifically.

And that is all the time we have for questions today. This concludes today's conference, and we thank you for your participation. Michael S. Jeffries: Thank you.