Jim O’Donnell, Chief Executive Officer Susan McGalla, President and Chief Merchandising Officer. Joan Hoxen, SVP Finance Dale Clifton, SVP Finance and Chief Accounting Officer

Dana Cohen, Banc of America Dorothy Lakner, CIBC World Markets Kimberly Greenberger, Citigroup Margaret Major, Goldman Sachs Todd Slater, Lazard Freres Jeff Black, Lehman Brothers Holly Guthrie, Morgan Keegan Stacey Pack, Prudential Securities Tom Filandro, Susquehanna Financial Group Jeff Kleinfelder, Pipe Jaffray Adrienne Tenant, Wedbush Morgan Richard Joffey, Steeple Nicholas Janet Koffenberg with JJK Research Judy Mehan, Sr. Director of investor Relations: Good morning everybody. Thank you for joining us today. With me from management are Jim O’Donnell, CEO, Susan McGalla, President, Chief Merchandising Officer, and Joan Hoxen, SVP Finance. Also joining us for the Q&A section is Dale Clifton, SVP Finance and Chief Accounting Officer. If you need a copy of our 4th quarter press release it is available on our website ae.com or please call Aaron at 724-779-6076. Before we begin I need to remind everyone that during this conference call members of management will make certain forward looking statements based upon information which represents the company’s current expectations or beliefs. Results actually realized may differ materially from those expectations or beliefs based on risk factors included in management’s discussion an analysis section of our quarterly and annual reports files with the SEC. now I’d like to introduce our CEO, Jim O’Donnell. Jim O’Donnell, CEO: Thank you Judy. Good morning everyone. I’m quite pleased with our 2005 annual performance which followed outstanding results in 2004. Sales rose 23% driven by a comp increase of 16%. We exceeded the $2 billion milestones for the first time in our history. For the 2nd consecutive year, our operating margins reached new highs rising to 20% from 19.3% last year. Annual EPS increased 27% to a record $1.89, compared to $1.49 from continuing operations last year. This clearly demonstrates the strength of our brand and the strong execution throughout the company. For the 4th quarter, our sales increased 13% and EPS exceeded last year by 6% before one time items. Although our goal was to deliver higher earnings growth for the quarter, we managed the business well through a period that was less robust than we planned. We feel good about achieving a 23% 4th quarter operating margin, our second highest ever. I believe this reflects the strength of our people, the appeal of the brand and disciplined operating procedures. During the quarter we made a decision to sell the national logistics services, a business that handled logistics for our Canadian stores as well as third party customers. The sale reduced our fourth quarter EPS by $.01. however, going forward, we expect a reduction in our Canadian distribution costs which will more than offset the write off. We entered 2006 with several well defined growth strategies. Steven will speak about the AE brand intimates and AE.com in just a moment. In 2005, our square footage increased 5%. We opened a total of 36 stores and closing 11 underperforming locations, and remodeled 43 stores. These stores are performing extremely well. With sales per square foot of $454 during the first year, which is just under our mature stores sale base of $472 per square foot. These stores are quickly profitable and in 2005 produced a profit margin of 23% with a first year ROI of 100%. Remodeled store economics are also quite positive. After a renovation, average store sales increased 46% and sales per s.f. increased 14% on a square footage increase of 29%. We have about 160 stores yet to remodel. In 2006, we will open approximately 50 new stores and remodel about 50 locations, leading to a 7% s.f. growth. These stores will open in malls as well as new lifestyles centers where our store performance has been very productive. Over the past year, we took initial steps to enter Japan. Although we have decided not to move forward with the agreement we discussed on our last conference call, we are pursuing other opportunities. This is a longer term growth initiative. But given our success from AE.com in Japan, the vast size of the Japanese consumer market and the strong demand for American brands, we are optimistic about our prospects. And finally, this is an exciting time for us as we prepare for the launch of our second major US brand, Martin and Osun. The store design is complete and as we announced in a separate release this morning, we have finalized 4 leases with 2 more in its final stages. The stores are located in premier shopping centers across the country and are scheduled to open this fall. Our merchandise assortments are a unique blend of sport, classic, and denim influences, which addresses the 25-40 year old customer in a way that is not currently being done. We look forward to introducing you to Martin and Osun this fall. Now I’ll turn it over to Susan. Susan McGalla, President and Chief Merchandising Officer: Thanks. Good morning everybody. In the 4th quarter we achieved strong sales results yet we did not meet our initial plans. Our holiday looked good, but not our best. While the sales trends we saw during the first half of the year did not continue into the 4th quarter, we managed our business well and carefully positioned our markdown and promotional cadence. This enabled us to sustain strong overall operating margins and importantly brand integrity. During the holiday season customers responded positively to the gifting environment at our store. We executed well in a number of categories delivering solid, key items. There were a few areas where the fashion bases were not as strong as they should have been, specifically women’s sweater and cold weather accessories. Overall, our women’s division produced costs in the positive mid-single digits and men’s continued to show strong results with a mid teen top increase. Our highest comp categories included mens and womens knit tops, graphic tees and jeans as well as mens fashion accessories and womens intimates. Ae.com performed well during the quarter. Sales increased over 50%, making the ae online shopping experience the best in our space. The excitement brand energy and innovation will be an ongoing area of focus for ae.com. Our loyalty program, ae all-access pass, which launched in q3 has performed well exceeding our expectations by 50%. Redemption rates to date have met our expectations. Ae all-access gives us a direct, one on one connection with our best customers and importantly enables us to replace direct mail coupons with a program that rewards brand loyalty. We ended 2006 with well defined strategies to grow our brand and increase store productivity. Leveraging the success we’ve had making ae jeans number one in market share for 15-25 year olds, according to NPD data, we are building brand defining items in other select categories. Near term opportunities lie in the knit area including polos, graphics, fashion tees and tanktops. As we announced yesterday we are looking forward to the launch of our new intimates sub-brand, aerie by American eagle, this coming fall, aerie is a natural expansion of our brand dna, building upon our experience and the successful track record we’ve enjoyed in intimates over the past several years. We will launch with a dynamic assortment of bras, panties and dormwear, which is designed to take our girl from the dorm room to the coffee shop. I am confident that we will build a meaningful sub-brand with aerie and that rests on the proven success we’ve had with intimates and the highly experienced team we have driving this business. Now, I would like to turn and touch on our spring plans. First we are comfortable with our inventory content and levels which support the areas of growth and demonstrate a focused discipline in inventory management. We’ve had have a positive response to the assortments so far, and our spring 2 update arrived in stores in 2/21, right in time for spring break. We are absolutely committed and passionate about earning the spring break business, which is an increasingly important event for our brand. We remain excited about our ongoing partnership with MTV, particularly around their spring break programming and will continue this relationship throughout the year. Look for our next assortment update on march 29th. In closing, as we announced in the press release yesterday, I’d like to say how thrilled we are to have Kathy Savit joining the AE team as our new chief marketing officer. Kathy brings broad marketing experience, strong brand vision and a proven track record for inspiring creative teams. I’m excited about having her partnership as we continue expanding and driving the AE brand. Thanks and now I’ll turn the call over to Joan.

Thank you Susan and good morning everyone. As you have heard, our strong brand position, solid merchandising and disciplined operations lead to an extremely successful sales and earnings performance for the full year 2005. during the fourth quarter we sustained high operating margins while absorbing expenses related to our key growth initiatives. Now let’s take a look at the fourth quarter. Topline sales increased 13.4% to $764 million. Comparable store sales increased 7.8% against a 28.6% increase last year. Four the quarter sales reflected positive store traffic trends, resulting in low double digit increase in both units sold and transactions per store. Higher merchandise markdowns resulted in a low single digit decline and are averaged in our retail price and average transaction value. Units per transaction increased slightly during the quarter. All geographic regions compositely in the fourth quarter as follows: low double digits in the southeast and southwest, high single digits in the northeast and mid-Atlantic, mid-single digits in the west, low single digits in the Midwest and high teens in Canada. Turning now to our margin performance, our gross margin of 46.3% declined 300 basis points from 49.3% in the fourth quarter of last year. An increase in markdowns partially offset by higher lead to a 210 basis point decline in the merchandise margin. Buying, occupancy and warehousing costs increased 90 basis points. Rent expense leverage, which was offset by expenses related to the operation and sale of our Canadian distribution business. SG&A leveraged by 10 basis points to 21%, while absorbing costs related to Martin and Osun, intimates expansion and the launch of our new loyalty program. Our leverage was achieved through continued expense discipline and store payroll and a reduction in professional service costs. Also included in SG&A was an asset write down for our Canadian distribution business and an increase in expense due to the timing of accrual. We generated a small q4 operating margin of 22.8%, vs. 25.5% last year. O Other income for the quarter increased 31% to $4.4 million, reflecting a higher average cash and investment balance on a higher investment yield compared to last year. Our fourth quarter effective tax rate was 40%. This compares to 39% last year. The higher rate was a result of a $3.8 million or a 2 point per share charge for tax on a planned repatriation to take place prior to the tax year ending July 2006. For the fourth quarter we expect our effective tax rate to approximate 39%. Income from continuing operations for the fourth quarter increased to $107.1 million, compared to $106.9 million last year. Fully diluted earnings per share increased to $.71, which includes a $.01 loss from the sale of NOS and a $.02 charge due to the repatriation of foreign earnings. Strong cash flow resulted in a $223 million increase in cash, short term and long term investments compared to the end of last year. This is after capital expenditures and share repurchases. During the third and fourth quarters we repurchased 7; million shares for a total of $161 million, leaving 3.5 million shares in authorization. We will continue to pursue share repurchases as a part of our overall corporate financial plan. Capital expenditures in the quarter were $23 million and for the year totaled $83 million. Primarily related to our new and remodeled stores. For fiscal 2006 we expect capital expenditures to be approximately $175 million. This is related to new and remodeled stores, our new Pittsburgh headquarters in center as well as the construction of a new distribution system in Kansa, to support Martin and Osun, intimates expansion and potentially our direct business. Now regarding inventory. Historically we have recognized ownership of merchandise inventory for reporting when it arrived at one of our deconsolidation centers. With our merchandise, which have provided greater visibility further back in our supply chain, we will now report merchandise based on receipt at the shipping port. Merchandise inventory has been adjusted by $31 million for 2005, and $33 million for 2004 to reflect this change. At the end of the 4th quarter, total merchandise inventories increased $40 million to $211 million, compared to last year. Our inventory per square foot at cost increased 16% and our units per foot were up 10%. The increase in inventory due in part to our intimates expansion plan, and our initiative4 to position AE as a destination for men’s and women’s knit tops and jeans. Looking ahead to the end of the first quarter, we expect ending inventory to increase in the low double digits in cost per foot, compared to last year. With respect to earnings guidance, at this time we expect our first quarter earnings per share to be in the range of $.36-$.38. This compares to earnings of $.35 per share last year. Our first quarter guidance includes stock option expense of $.02 per share. For the year we expect stock option expense to total $.04-$.05 per share. We have built a strong platform for the future and are committed to our growth initiatives. We enter 2006 optimistic about our brands and are well positioned to deliver annual earnings growth in the double digits. Thank you and now we would like to open the call for questions. We ask that you please limit yourself to one question to allow us to hear from as many of you as possible.

Our first question comes from Tom Filandro with SIG.

Thanks. Can you give us a sense of the INU outlook for the spring season in ’06. I heard you mention some opportunity was achieved in the fourth quarter. And given the change in the pricing the tier pricing strategy, just a general view of the average unit resale pricing heading into the spring season. Thank you.

Hi Tom. Our view on INU is we’ve experience significant INU growth in the past five years and certainly in the fourth quarter we experienced it. As we look forward, we’re always mining for INU opportunities, but as we restructure our operating plans for ’06, we expect modest increase in INU and will continue to drive that line.

Okay Tom, I’ll take the tier pricing part of your question. First of all I want to reiterate, one of our unique competitive advantages in the way that we’re positioned is the way that we’re priced and the way we deliver value to our customer. We are committed to that absolutely. But we are in select categories really letting the talent of our design team take some key categories and develop tier pricing to help us sell market share and really compelling product in those categories. It’s working very well for us.

Is that suggesting that AE heading into spring are moving in a more positive direction?

I’d tell you that we’re counting on conservative positive improvement.

Thank you very much. Best of luck to you all.

The next question comes from the line of Margaret Major with Goldman Sachs.

Hi. A couple of things, quickly. You said your market share is number one in your target zone. Can you give us any numbers around that from your NPD data. And on your knit opportunity where you think that’s probably your biggest opportunity in front of you, can you elaborate on what that means? It’s a pretty broad statement. And lastly on the markdown front, would you expect the markdown rates to continue at the level that you saw in the second half of ’05 into the first half of ’06? I’m obviously noting that you had very strong gross margins last year in the first half and then they weakened a little in the second half but the markdown situation I would think is normalizing. If you could just help us understand that whole dynamic it would be very helpful. Thanks.

Okay Margaret, I will take the first two marketshare questions and then Joan will take your markdown question. As it related to the NPD data, our growth took us to with what was reported in the third quarter for NPD, 12.7% marketshare in our when you combine men’s and women’s and we’re very proud of that number and the number one ranking that we hold at this point. And then as it relates to, you mentioned as a broad statement when we mentioned that we’re going after knits, what we’re doing is taking a disciplined…it’s obviously a very high volume category for us as we sit today. But I will tell you I think a lot of improvement when it relates to turned, the way we’re positioned, and the way that we’re top of mind with our customer, that we can really go out there and take some core competencies on how we internally approach our denim business. With the internal disciplines from our design, to merchandising to planning teams and we’re taking these disciplines and those winning practices and applying it to the knit business because we think there’s a great return, a great marketshare opportunity and its obviously a great outfit with a pair of jeans.

Margaret with respect to the markdowns, as you’ve noted and as we’ve mentioned in the past our initial plans for the third and fourth quarter were higher than the performance we achieved. We were up against a record margin performance. But within our first quarter guidance, we have assumed a more realistic markdown rate which is above the first quarter of last year. This rate we believe allows us to present fresh assortments and to also provide seasonal update to our customer on a normal cadence. Our margin expectations for the first quarter is strong, yet it is below last year. And we believe this will lead us to deliver again and to sustain a high operating margin rate.

Okay, thank you.

The next question is from Dana Cohen with Bank of America Securities.

Good morning everybody. Just following up on that. I presume your comments about margin relate to the spring, not just the first quarter. Second, can you also talk about sort of SG&A. because if you look at SG&A for the year last year it was up about 20, but it was up about 13 in the fourth quarter. What should we be thinking of the growth in dollars for ’06, given some of these investments? And lastly, I want to make sure I understand the inventory growth is, can you give us a sense of how much of that is for intimates and how much for knits in terms of the increase?

Okay Dana, let me take that. With respect to the SG&A leverage, we have as you know and we’ve mentioned, absorbed expenses related to our growth initiatives. M&O, our new loyalty program, the intimates expansion as well as international. We also made a decision in the 4th quarter to sell our Canadian distribution business, all impacting our SG&A costs. Our operating plans are structured to leverage slightly at a mid single digit comp. so for the year, last year we averaged 50 basis points after investing in all of these growth initiatives and we feel that is a strong operating margin performance and go forward. We expect leverage with these costs in there at mid single digits. And with respect to our inventory growth, we are behind the key focus catgories that Susan mentioned. And, we believe that our inventories are positioned in the right place. Intimates is in there, denim’s in there, knits is in there and we’re pleased with the balanced assortment that we have today.

Is the bulk of it intimates? Just give us a sense, is it 50/50 intimates the other categories? Just any sort of breakdown.

I wouldn’t even quantify it to you in that way. I think the best thing I can tell you is that we’re on our plans for the beginning of February and where we wanted to be positioned in inventory. You may see that moderate slightly through the quarter and come down a tad, but we are committed to growth and we will be investing in businesses that we’re going after. But in a very responsible, disciplined way.

And then the comment on gross margin. I just want to make sure of your comments. Were they q1 or I presume for the spring as well?

They’re for the spring.

Great thank you.

The next question comes from the line of Jeff Kleinfelder with Piper Jaffray.

Susan a question for you on the merchandise plan for the spring/summer season. Off to a strong start here in February with knits and with denim and shorts, it sounds like. Considering your strong performance last year, where do you see the greatest opportunity? Is it more in having more of the knits than having better product in the knit category than having a different flow of inventory or different pricing? Can you just give us a sense without giving away the secrets of course, where really are your biggest category or flow opportunities for the spring season?

I think that’s really two-fold and number one is we’re very, you commented on we’re off to a good start and we certainly are. We’re proud of the assortments that we’re offering in our store right now. It’s clearly I think speaking to you know our girl and our guy and their spring break mentality and the fact that they’re ready to move into the spring with … there are some new trends certainly reflected very well in our assortments right now. You mentioned the short business and I won’t go any further speaking to those type of trends. But as it relates specifically to knits, again I reiterate the fact that its obviously a big volume driver for us, but I will tell you that I’ve not been happy with the consistency on how we deliver fashion basics and the trend side of where knits should be positioned and we have worked very, very hard, myself with LeeAnn Neals, our chief design officer in New York, to get the right talent in that area, particularly the women’s knit area, to make sure that we’re delivering upon that balanced approach that drives key item volume and consistency in that area in a more compelling way.

So that would be, to clarify, within knits a better balance of fashion basics. Would that be more of either one or is it not that specific. And secondly on spring break, we’re hearing a lot about some of the spring break business shifting into April with an Easter shift. Do you have an updated thoughts based on your own research where the timing of spring break sits this year vs. last year?

First of all, as it relates to that balance of fashion basics to trends, the biggest example I can give you is if you look to holiday and the miss that I indicated that we had in women’s sweaters, quite honestly we had a better fall sweater assortment than holiday sweater assortment because we had the fashion basics and the really key item drivers. Our girl, is like a no-brainer, she pops on her sweater like a tee shirt and we had that in fall and didn’t reflect that same strength in holiday. It’s that kind of thing that we need to be thinking about. And as it relates to the spring break effect, with the later Easter, quite honestly, we maybe see a slight benefit to a later Easter, but for us its really a change of the fact that we know we’re in the high school and college demographics. So a later east means the high school spring breaks will be right around the easter time in april and that certainly drives mall traffic into the month of april. But our college spring breaks we see very little change in the cadence of that, and that is a very, very strong driver for us in weeks 2, 3, and 4 of march. Jeff. Kleinfelder: Great. Thank you very much.

The next question comes from Jeff Black with Lehman Brothers.

Thanks, congrats on a nice quarter. I guess for Susan, could you give us a little color on what you think the shift to more intimate means in terms of comp as we look at AUR vs. units per transaction. And when would you expect this initiative to be incremental to the comps? Can we see and impact in ’06? Thanks. Susan McGaff.: A couple of things on there. I would tell you that right now the business is just sizeable enough that it is currently contributing to our comps. It contributed to our comps in q4 and we see that obviously being an even more important piece as we grow it, as we move into this year and beyond. The average unit retail that actually has improved. It’s lower than the main brand run, but it’s improving because of the way that we’re balancing underwear and dormwear in that piece of the business. And the last thing that I will leave you with is because, and again I can’t reiterate it enough, this is not a new business for us. We have been working, we’ve been succeeding, we’ve experienced disappointments and learnings, over the last 5 years in this business. And, in a very intense way over the last 2 years we have different real estate models and levels of assortment that we’ve been looking at out there. We know this business is incremental to the main brand. And, that is another reason that we are very confident and excited about growing this business on a go forward.

Okay. Fair point. Thanks and good luck.

The next question comes from the line of Stacey Pack with Prudential Equity Group.

Hi. A few things. Susan, first of all I was hoping you could touch a little bit more on intimates. Will you guys see opening larger stores to accommodate it? And, do any of the people who have been hired come from intimate apparel companies? And, then in terms of SG&A, how much are you guys going to be investing in Martin & Osun in intimates and international in ’06 relative to ’05, i.e. should we grow it in dollars similar to 4th quarter or first half? And then finally on inventories, what’s the percent of markdown this year vs. last and should we expect the inventory level to remain about at this kind of level for the whole year?

What I can comment on with respect to Martin and Osun, Stacey, is that our fourth quarter expense related to M&O was roughly $.02 per share and for the full year its roughly $.06 per share. As we anniversary our investment, we expect ’06 incremental expense to be lower than the ’05 incremental expense. And then, the last question you had was the % markdown this year vs. last year, I think Stacey. The way we have commented on that is that we realize that in the 3rd and 4th quarter that we had positioned our plans higher than we achieved and therefore we experienced a high markdown rate. As we look forward into the spring of ’06, our guidance includes a more realistic markdown rate which his above the fist quarter of last year and we also mentioned that we would expect that for spring as well, in it’s entirety. The rate allows us to manage fresh assortments and seasonal updates, but we believe our margin expectation for the first quarter is strong, yet it is below last year.

One follow up. The Martin & Osun, what about the other investments. You just said Martin & Osun, but what about intimates and international? Or were you talking about all of those when you said incremental expense will be lower in ’06?

What I can comment on at this time is the martin & Osun expense and that was just Martin and Osun, Stacey.

Okay.

We are certainly investing in intimates as it relates to real estate and our store real estate approach to aerie. And Stacey I’ll actually take it from there. I’m pleased to be able to talk to you guys and refer to intimates as Aerie by American Eagle. Our Aerie sub-brand as it relates to the real estate strategy you asked if we’re going to be opening larger stores. We’re very thrilled about right now is that not only does aerie have a dynamic real estate possibility, because not only do we have shop in shops within our four walls of American Eagle, we are cautiously approaching our side by side and free standing locations as we move forward and get more information as we expand the sub-brands. So, we really like this multi-pronged approach in terms of getting growth out of intimates, but when we open up our current four walled American eagle stores we really like a 900-1,000 s.f. of space for aerie and it does nothing but succeed in that environment. So that’s a great thing for us on a go-forward as we expand and remodel stores. As it relates to people and talent, we have some people on our design team that have experience directly in the intimates area. But, the Schumacher who we brought in, she doesn’t have specifically intimates background, but has a wonderful background as it relates to strategy and new businesses. So, we just really feel the dynamic of the team is positioned to take us forward.

Alright. Thank you.

The next uestion comes from the line of Todd Slater with Lazard Capital Markets.

Good morning. Good numbers again. I may have missed this, but could you talk about the comp growth you’ve seen or expect to see in the denim area? Just talk a little about how denim is tracking both as a percent of revenue and a percent of inventory ownership. In other words, are you turning it the way you’d hoped to? And, sort of how is it performing? My second question is just on the inventory ownership. Just go over a little bit where the biggest areas of the increase are again, up 16% - it’s obviously tracking ahead of your sales per s.f. numbers. And then last on the SG&A the incremental cost issues that you mentioned with the Canadian assets breakdown, Martin & Osun expenses and so forth. How much would the SG&A have been leverage on your 7% comp? what sort of a leverage point on comps going forward with martin and Osun and other expenses do you expect? Thank you.

Alright Todd, I’ll take your denim question. As it relates to denim, I will tell you we’re turning denim slightly better than a year ago. We’re very happy with its current performance and this being not only certainly a powerful marketshare player for us but also as well and even more importantly it’s probably the most important component of our lifestyle and what our girl and guy care about in terms of when they get dressed in the morning. So, we will continue to be improving and growing this business throughout the year.

With respect to the inventory. Our inventory as we mentioned todd is positioned for growth, particularly in the categories we talked about, intimates, knits and our denim business as well as we have some growth in there positioned for men’s. we have focused the inventory content on the categories that we’re going after. We believe it’s appropriately positioned and balanced and it provides us an opportunity for potential upside. But it’s a very well managed position. With respect to the SG&A question, I would roughly say that without some of those costs it would be about an 80 basis point leverage in the 4th quarter.

Okay, and looking forward in ’06 what’s the leverage point there on comps?

As I mentioned we look at our operating plan to leverage at a mid single digit, slightly leverage at a mid single digit including a view of investment and all of our critical growth initiatives.

Okay. And just to follow up on the inventory, so you’re planning for inventory to be up a lot higher than the comp numbers are running. So, the inventory’s turning more slowly, but you’re planning for upside there?

Clearly, we have positioned our inventory in a way that allows us to achieve opportunities so that . also I mentioned that as we look toward our guidance in the first quarter end, that it’s moving toward the low double digits. So we are also managing our inventory flow, Todd.

Low double digit on the inventories or the comps?

On the inventories for the end of Q1.

Got it. Okay, thank you.

The next question comes from the line of Richard Joffey with Steeple Nicholas.

Thanks very much guys and a very good quarter. A couple of follow up questions. If you could talk about marketing initiatives, obviously, with the staffing up we’ve seen. What you’ll be doing and how much more you might be spending year over year. If I could just follow on the Canadian comment…the sale of the distribution center and the possible savings. If you could make an effort to quantify that a little bit that would be helpful. And if you could talk about average unit retail in store…it appears to be going up. I’m wondering what’s driving that.

I’ll take the marketing initiatives and AUR, do you want to take the Canadian? James O’Donnell: Hi Richard how are you? The analyst transaction was very strategic for us and as you know we did incur a loss for Q4. expect some residual loss to carry over into Q1. but going forward we expect that we’ll say $.01-$.02 in earnings over the course of a year on an annual basis and reduce distribution and logistics costs in Canada.

As it relate Richard to average unit retail and what you’re seeing, our pricing positioning in our store right now is actually not very different from a year ago. Again, as I mentioned earlier on the call, we’re committed to the value side of our proposition. In select categories where the product and trend command it, we are very successfully working on tiered pricing, again in select categories in the brand. And with really no price resistance. The other thing I will tell you, we’re very proud. Our ticket prices mean something. We’re a full priced retailer, we sell a very large amount of our inventory at ticket price. Then as it relates to marketing initiatives I think you can expect to see our spend as a percent of sales remain constant. We’re not looking at the percent of sales to really take that up. I think it’s a very robust number and we manage it well. We are very excited about some of the marketing initiatives we have going on. I keep talking about our passion around spring break. That’s a big initiative for us this year. We’re doing some grass roots marketing. We’re at the college basketball arenas. We’re doing some contests and events that have been very well received and woven through all of that is our live your life tagline that we are on a mission to really make that so top of mind with our girl and our guy. And every marketing effort that you see us do whether in the magazines or Maxim, rolling stone, 17, Teen Vogue or whether its our store experience or our online environment, you will see us really standing behind that line.

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

Great. Thank you good morning. I think something in buying occupancy and distribution that I don’t really understand so I’d love some help on it. It seemed. I think you said you had negative leverage of 90 basis points in the 4th quarter on the 7.8% comp increase. So, is there some pressures in there that you can help me understand, that would be great. Joan Hoxen.: Sure, Kimberly. The situation in BOW is we have NOS in there as well and we also did experience some leverage in rent, which was a positive. But the decision to sell the Canadian distribution business is the biggest piece of that. So that’s probably wasn’t included in your model.

Okay Joan. Could you tell me what the charge was on the gross margin line for NOS? I think that it was (inaudible)?

Yes and I believe that the margin level, Dale do you have that number?

The (inaudible) dollars about $1.3 million were included in the buying and warehousing. In addition to that we had incurred an operating loss through the NOS business of about $1 million that was incremental to last year as well. So, the combination of those two things really deleveraged the buying occupancy, warehousing through distribution side.

Again, it’s a (inaudible) leverage of about 40 basis points.

Okay. I was just doing a quick calculation. It looks as though buying occupancy and distribution would have been flat year over year instead of down 90 basis points. It would have been almost a $7 million differential so…we’ve got $1 million on the operating loss for NOS, $1.3 million on I guess the loss on the sale, so I’m still coming up short by maybe $3.5 million.

Okay. You know what we’ll do is we’ll take that away and we’ll come back to you on that.

Great, thank you.

The next question comes from Dorothy Lackner with CIBC World Markets.

Thanks, good morning everyone. I wanted to ask Susan about the intimates business again. If you could just look at the margin potential vs. the core business and also how the bra test is going. When do you expect to get some results from that? And then for Jim, what the next steps are for international expansion in Japan and finally just the timing on the new home offices and distribution center. Thanks. Susan McGalla.: Jim do you want to take the international and home office first? Jim O’Donnell: Yeah, let me take that. Dorothy, as I stated in my presentation, we had a little change in course in our asian operation. What we’re doing now, we have a number of different options that are available to us. I’m just tryin got evaluate which one would be the most expeditious for us and one that would put the least amount of strain on the American Eagle brand. I would say that we would have something much more definitive to speak to in probably 3rd quarter of this year. But, we’re still very optimistic about the Asian market. We do have opportunities in other countries there but we feel strongly that Japan should be the entry point and…

Do you feel strongly that you need a partner there? Jim O’Donnell.: I don’t feel as strongly as I did after some of the due diligence. I think it would be beneficial to have one, but I’m not sure how the structure would work as it relates to ownership and also overseeing the operations.

So you might consider going alone? Jim O’Donnell.: With some minority help, yes.

Okay, great. Jim O’Donnell: That is one of the options. The headquarters…right now we’re on course to move into the first part of our growth and expansion into the downtown Pittsburgh market. There are 2 structures. One is already constructed, which we call quantum 2 and we expect that based on our current schedule to move in there sometime around late spring of ’07. And in quantum 3, it’ll probably be spring of ’08.

And the distribution center? Jim O’Donnell: On the distribution center we are expanding approximately 530,000 in Ottawa, Kansas where we already have an existing facility of approximately 400,000 s.f. That’s schedule right now, if all things go well, we could be operational mid ’07.

Okay, great.

And to your questions on Aerie, as it relates to margin, we have had a track record here and our track record has shown that the margins for Aerie are at or slightly above that of the main brand, which obviously is one of the main reasons this is so attractive to us. And to answer your question on bras, we mentioned that we were putting a bra test out there for spring of this year in about 100 stores. We have about a month under our belt and have learned a lot and have been very pleased with our results and the learnings and are looking to expand that into the fall of this year.

Any sense of the number of stores you might expand that to?

We’re hoping by the fall period it will be atl east double that.

Great. Thanks. Good luck.

The next question comes from Adrienne Tenant with Wedbush Morgan.

Good morning, congratulations. Just a couple of questions. Susan, the first question would be, as you’re looking at back to school and how strong denim was last year, can you give us any color on the penetration of denim last year and what you’re thinking about in terms of categories that can either replace some of that penetration as well as some of the AUR increase there. And then secondly, when you look at the historical sales productivity, it looks like you’re reaching new levels, new highs. Where do you think that can go?

First of all as it relates to denim, we are as I told you, we spend every month of the year, we’re constantly working on what our next strategy in denim will be in back to school and the most important time periods for launching newness. The one thing I will tell you is that we have had in the works for the past 8 months since we launched last back to school, is a positioning for this coming 3rd quarter of a significant amount of newness that will be driven into tour denim category. We are going to be leveraging all of our key fits that our girl and guy come to us for that we’ve built market share in but we will be offering some new fits and also a compelling amount of newness in wash change. So, we are very excited and fastest growing category, we will absolutely be anniversarying our value price point at $29 and $39.50 and making sure that we maintain that penetration .our growth right now is actually coming from jeans over $40. so we are going to be very strategic about that, very balanced in our price positioning but we’re very excited about what we’re moving toward in back to school in denim. And then… Joan Hoxen.: Adrienne, with respect ot the sales productivity our goals are to achieve $560-$600 per s.f. and we believe that we’re seeing strong productivity in our stores, we’ve seen historical levels that were relatively high, but at this point we do have a larger store than we did historically. So we feel comfortable with that target of $550-$600 with the growth initiatives that we have in the pipeline.

Okay. Then Susan, just did you have this penetration of denim last back to school season?

Yeah. We’re right around that 20% range that we’ve been running and we’ll be planning at somewhere around there with the opportunity to grow it.

And then just with the are you a believer in that and will you be playing that?

We’re certainly aware of that. I think the great thing about the way that we approach these trends is we certainly have to be aware of them, our design team is working very hard to take that trend and figure out exactly what it means for our American Eagle girl and you’ll see our American Eagle version of that trend for

Okay great. Thank you so much.

The next question comes from the line of Janet Koffenberg with JJK Research.

Thank you guys. Congratulations. Susan, just a question on the inventory. I know that you’re saying that at the end of the 2nd quarter it will be up double digits or at least at the end of q1 going into q2. and I know that the 2nd quarter of last year your inventories were increasing and probably increased at a level you weren’t comfortable with in hindsight. So, other than intimates, maybe you could talk about the differences in the inventoyr build that’s going on this year vs. last year and why it may not be as risky as it turned out to be last year. And also if you could comment alittl bit about the beyondn denim. What’s happening there both on the men’s and women’s side and if there is something happening in the non-denim business, if that continues into fall, as you see it today. Thanks.

As it relates to inventory and our comfort level with it, I have to reiterate we are very comfortable. We have strategically worked throughout the fourth quarter in a very productive way to sit where we sit today and we’re very comfortable with where our inventory investments sit. We talk about those moderating slgihtyl, but we’re a growth brand and we’re going to strategically ging to be investing. As we keep saying today, it’s important that we are strategically investing in categories. I think the big thing for last year is, and hindsight’s 20/20 of course, but as we mentioned in our comments, we were positioning our inventories to be aligned with sales growth rates of the first half of the year and that did slow down slightly for us. So anyway, we’ve given you our guidance for this year, we’re very comfortable with where that sits and how we’re investing in our business, but we can’t be afraid of this business either. We have successes and we’re going to build upon those and be very strategic about where we place our investments. Anyway as it relates to the bottoms business, obviously we’re seeing success in denim. There are some other things happening in the business that you’re probably seeing in trends, whethere it’s a short business, capri’s, we’re doing those things our way and we do so some trends that our happening there that weill continue into the 4th quarter and then into the back half of this year with military trend etc.

Susan, is that business growing at the expense of denim or is it just augmenting the growth of the bottoms business?

It’s not happening at the expense of denim at all. I will tell you there’s some shifting in some other bottoms businesses. Where honestly, we’re so good as a brand… I feel really proud that we don’t have last-yearitis in this building. We really look at areas we want to push and then down trending categories we want to pull back on. And we are very well positioned right now in doing exactly that.

Okay, thank you.

The final question comes from Holly Guthrie from Morgan Keegan. Holly Guthrie.: Thank you and congratulations everybody. I have 3 questions. First could you just break out the in-tact on the for including the charges? And second, further clarification on gross margin, your guidance and the impact of the AE all-access pass. Could you talk a little bit about your plans to maybe pull back some of the markdown activities at the store as the AE pass rolls out and is implemented and is used? And do you think at some point this year some of those markdowns . How does that flow? And then if you could, talk about any differences in your product planning in ’06 vs. ’05, either speaking more on the lines of immediate a little bit of change in the cycle and is there any product delivery differences in the spring vs. last spring?

Okay. Let me start off by saying with the shipping, there’s no impact to comps relative to that item. As we look forward in the markdowns, what we’ve been articulating is that we believe that we’ve taken a very realistic view of what we need to position markdowns at in our operating plan to support a good solid assortment on the floor, provide the freshness in seasonal updates. But also we have to bear in mind that are doing other things in the business to leverage that. One of those would be a key initiative that’s under way which is profiling which will help us understand and provide better allocations to our store by individual location at the five level. And we also continue to fine tune and leverage our profit . So, coupled with that, to Susan’s point, our inventories are very strategically focused and we feel good about where they are, we feel good about the inventory flow and as we look forward with the tools that we have, we believe that we can really manage that very well. And Susan and I with the merchandise team and the merchandise planning team and finance groups are very much in lock step. On managing our inventories and our margins, to sustain the high rates that we’ve achieved. That would be the comment on markdowns. With respect to ae all-access pass, we recorded initial investments in that program in the fourth quarter. As Susan mentioned, we feel very good about the enrollment, it’s exceeding our expectation and we feel good about how the program has been moving along. And we expect to be able to talk to you more about ae all access as we progress through the spring season and can better assimilate and have good information to report back to you on.

The other thing I will add in addition to what Joan said, we have been pulling back on markdowns in preparation for rolling out our ae all access, so all of that double couponing and multiple couponing that quite honestly was going on in our business a couple of years ago, we’ve been working over the last 18 months to pull that back. That is happening and we felt that we ran a very successful business last year as we were working through that change and we sit today in position to reward loyalty productively. Again, our markdowns are focused productively into driving loyalty into our business. And to answer your last question, we have no major product planning changes, as we move into this year. The only thing I can tell you we are committed to our of the year to offer units to our customers. It’s a very important way that we run the business. Holly Guthrie.: Thank you.

Ladies and gentlemen we have reached the end of the allotted time for questions and answers. I will now turn the call back over for any closing remarks. Jim O’Donnell: I just want to thank everyone who participated on the call and we’ll be speaking to all of you very soon. Thank you.