Judy Meehan - Vice President, Investor Relations James V. O'Donnell - Chief Executive Officer, Director Joan Hilson - Executive Vice President, Chief Financial Officer

[Rick Patel] - Merrill Lynch Kimberly Greenberger - Citigroup Jeff Black - Barclays Capital Paul Lejuez - Credit Suisse Brian Tunick - J.P. Morgan Jeff VanSinderen - B. Riley & Company, Inc. Jeff Klinefelter - Piper Jaffray Adrienne Tennant - Friedman, Billings, Ramsey & Co. Christine Chen - Needham & Company, LLC Todd Slater - Lazard Capital Markets Linda Tsai - MKM Partners Richard Jaffe - Stifel Nicolaus & Company, Inc.

It is now my pleasure to introduce your host, Judy Meehan, Vice President of Investor Relations. Thank you, Ms. Meehan, you may begin.

Good morning, everyone. Joining me today are Jim O'Donnell, Chief Executive Officer, and Joan Hilson, Executive Vice President, Chief Financial Officer. If you need a copy of our third quarter press release, it is available on our website, AE.com. Before we begin, I need to remind everyone that during this conference call members of management may make certain forward-looking statements based upon information which represents the company's current expectations or beliefs. The results actually realized may be materially different from those expectations or beliefs based on risk factors included in our quarterly and annual reports filed with the SEC. And now I'll turn the call over to Jim. James V. O'Donnell: Thanks, Judy. Good morning, everyone. As you are well aware, we continue to face a number of challenges which impacted third quarter results. We experienced lower store traffic, weak consumer demand, primarily in women's. As a result, earnings per share excluding the impairment charge decreased 33%, driven by a 7% comp store sales decline. Certainly, the times are uncertain; however, I'm confident in the strength of our organization and believe that we are well positioned to weather the storm. Now here's why: This is a seasoned management team, one that has experienced difficult times before. We've not only survived, but we emerged a stronger company. Our company is highly profitable and we have consistently generated strong cash flow. Although the third quarter earnings declined, we achieved a 12.6% operating margin, and so far this year we've generated $320 million in EBITDA. Our balance sheet is strong. Currently, we have $616 million in cash and cash equivalents, with $333 million of cash and liquid Treasury funds. Looking forward, we expect the near-term environment to remain challenging and we're planning accordingly. To that end, we are reducing costs and tightly managing inventory [inaudible]. Also, we significantly lowered our 2009 capital spending plans, driven by our decision to open fewer new stores next year. We now expect to add a total of 29 stores versus our original plan of 90. Capital expenditures are expected to be in the range of $110 to $135 million. That compares to $250 to $270 million this year. Longer term, we see continued new store opportunities for all of our brands; however, given the current state of the economy, I believe conserving capital and lowering our cost structure takes precedence. American Eagle is an established and leading brand of 15 to 25-year-olds, with a long heritage of quality merchandise offered at great value. Right now consumers are seeking lower prices and trusted value more than ever before. Within the AE brand, we are responding with affordable pricing and promotional events while maintaining our strong tradition of great quality. We are highly committed to protecting our market share and doing so profitability. We can achieve this through appropriate inventory investments, building value into our initial pricing plans, and lowering indices and markdowns. For example, in the spring season we have planned and purchased a higher portion of our assortment to be value priced and on promotion compared to last year. Like many others, we've experienced soft demand in women's. Strengthening this important business is our number one priority and opportunity. Over the past several months, we've improved our process to be more effective. We are making critical decisions more quickly and importantly, we've appointed a new head of AE women's design. And going into 2009, I believe we're in a stronger position, with increased customer connectivity and a more streamlined organization. Although the women's business remains weak, we see improvements in certain areas. We are making progress with an increased selection of unique fashion items at great prices. For example, accessories, jewelry and new fashion tops are showing modest improvement. Our teams are enthusiastic about the spring lines, where we have a higher mix of value priced and new fashion items along with our AE core essentials. Needless to say, however, we are maintaining a conservative inventory position until business turns around. Aerie. Aerie continues to emerge as a promising new business. We now have a solid base of 114 stores, with excellent upside potential. The merchandise margins in this business are very good; essentially, they're equal to the AE brand. We've reduced our operating expense base and our store build out costs. We have seen excellent brand acceptance and loyalty. An example - our A list loyalty program is gaining momentum, with growing members and high redemption rates. Over the next few years, the opportunity is to increase store productivity and we recently hired additional merchandising talent into our aerie team to drive ongoing category development and growth. MARTIN + OSA. MARTIN + OSA is showing solid progress. We are pleased by the customers' response to the latest assortments, especially in light of the current retail climate. Consistent with our lower 2009 capital spending plan, we are not opening any new stores next year in MARTIN + OSA. We will continue to strengthen our operating model with the 28 existing stores and look for ongoing progress in merchandising and building consumer awareness. Last month we launched 77kids online to an extremely positive customer response, which well exceeded our plans. We will continue to learn about this new business and we hope to open retail stores some time over the next few years. But before I conclude, one final comment about the strength of our operational organization. Very simply, I feel it's the best in class. Over the past several years we've made significant investments in our data center, systems and distribution facilities. We are realizing the benefits of those investments in cost leverage and the effectiveness of our overall supply chain. In fact, despite the increase in fuel costs, our transportation and processing cost per unit declined from the third quarter of last year. We've been industry leaders in the use of technology and we will continue to implement new systems that deliver a meaningful return on investment with real productivity improvements. In early November, our team completed the U.S. rollout of our new point of sale system. I'm very pleased that the implementation was on schedule and seamless, positioning us well for the holiday season. I believe that we have the most comprehensive system in our space, providing real-time multichannel visibility to customers, transactions and inventory. We've just begun to utilize the system's capabilities and have further projects planned to enhance the shopping experience, regardless of where and how the customers choose to shop our brands. Now I'll turn the call over to Joan.

Thanks, Jim, and good morning, everyone. Our third quarter earnings were the result of a decline in top line sales and increased promotional activity compared to last year. Third quarter comparable store sales declined 7% compared to a 2% increase for the same period last year. Total sales increased 1%. A challenging retail climate contributed to lower traffic and transactions per store. The average dollar sale was essentially flat. More promotional activity resulted in a lower average unit retail price and drove an increase in units per transaction. Turning to gross margin, our rate of 41% was 640 basis points below last year. Here's how this breaks down: 470 basis points for merchandise margin and 170 basis points from buying, occupancy and warehousing costs. Within the merchandise margin, markdowns were higher and experienced an increase in the cost of merchandise. Looking forward, we expect IMU pressure to continue in the fourth quarter due to higher product costs. Rent was the primary factor within buying, occupancy and warehousing cost. New store openings and negative comparable store sales were the cause of the higher rate. SG&A expense increased 4% to $181.7 million or 24.1% of the rate to sales. That compared to 23.4% in the third quarter last year. The higher rate was due primarily to the negative comp in the third quarter. Nearly all operating expenses were flat to last year as the rate to sales with the exception of professional services. Store payroll was well managed, with a slight deleverage on a negative 7% comp. As a result of our expense reductions, SG&A per foot declined by 9% over last year. This is our best rate since 2005. Cost savings initiatives remain a primary focus. We expect SG&A dollar growth in the fourth quarter to be approximately 2%. Other income was affected by an impairment charge of $19.9 million related to the valuation of auction rate securities. The effective tax rate for the quarter was 46.4% compared to 37% last year. The higher tax rate was due to the affect of the ARS impairment charge. Now turning to the balance sheet, average third quarter weekly inventory per square foot was consistent with our expectations of down low double-digit. Clearance inventory at quarter end was also down in the low double-digits. Looking forward, our fourth quarter average weekly inventory is planned down in the low double-digits at cost per foot, with a more conservative plan in women's. Capital expenditures in the quarter totaled $69.2 million. This was related to store growth and renovation, headquarters and distribution centers. Our 2008 CapEx guidance continues to be in the range of $250 to $275 million. As Jim mentioned, we significantly lowered our 2009 capital spending plans to a range of $110 to $135 million. Our plans include 12 new and 25 to 35 remodeled AE stores and 17 new aerie stores. Our plans also include the completion of our headquarters, information technology, and distribution center projects. Now, regarding our fourth quarter outlook, November sales continue to be challenging. Through the first two weeks of the month, comparable store sales were down 17%. With onethird of the month still ahead and the importance of the Thanksgiving weekend to gauge holiday selling, we will provide fourth quarter earnings guidance next week, along with our November sales announcement. Now I'll turn the call back over to Jim. James V. O'Donnell: In closing, let me simply say this: We're a strong organization, with a trusted and enduring brand. We'll manage through these uncertain times and I'm confident that we'll emerge a stronger organization, ready to continue our growth plans. Now we'll take questions.

Thank you. (Operator Instructions) Your first question comes from [Rick Patel] - Merrill Lynch. Rick Patel - Merrill Lynch: Just a question on your inventory. Can you just give us some color on just how much of the inventory came from which brand and just some granularity on men's versus women's product?

Well, with respect to the inventory, as I said, it came in as expected, on the average down low double-digit. At the end of the month, the way the inventory positioned in terms of percentage decline, it was essentially consistent across men and women's categories. When you look at our overall inventories, what contributes to the difference between the average and the end of the month, of course, is in transit as well as our AE Direct business, which is not included in the cost per foot calculation or the average weekly calculation. Rick Patel - Merrill Lynch: And then in light of just the trends that you're seeing in November, have you been able to pull back on your inventory numbers for the spring?

We are managing inventory, so the answer's yes. And we are managing inventory consistently for spring '09 as we have for the third and fourth quarter of this year. But what I would ask you to keep in mind is the comment that Jim made in his prepared remarks and that is that our promotions and our inventory plans include a value offering that is planned for as opposed to what's occurring in the third and fourth quarter of this year, which is somewhat reactive to the traffic that we're seeing in the malls.

Your next question comes from Kimberly Greenberger - Citigroup. Kimberly Greenberger - Citigroup: I was hoping that you might be able to expand on your comments on the SG&A cost cutting initiatives that you're undertaking as you're looking out to 2009. Is it possible you could give us maybe some major categories you're looking at for cost cuts and any sort of quantification just to help us understand what the magnitude of the opportunity is?

As we've said, we are looking at all areas of our organization for efficiency. But with that in mind, specifically, our first half of 2009 we will be able to continue to see benefit from the cost cutting initiatives of '08 because those largely began at the end of the second quarter. We also are looking at our marketing expenses and look to position marketing at roughly 2% of sales as opposed to roughly 2.5% of sales for 2008. So that's an area that we can focus on. We also can continue to drive the payroll at the store level. Because of efficiencies in terms of store operations, we're able to bring down some of our payroll costs at the store level as well as our payroll matrix, we can continue to evaluate based on the traffic in sales that we're seeing in the store. So it's a strong flex model for us. Some of the other areas that we can go after and are doing so are in our non-merchandise procurement, so we can continue to drive efficiencies in packaging as we leverage the needs across all of our concepts and really drive a shared service approach there. And, again, just the operation of the stores, we're able to get efficiencies in the facilities management of our stores. And one of the significant initiatives that has been driven as well is capital expenditures, and we're pulling overall capital costs down, but also just the cost to build a store, we're able to drive some efficiencies there as well. Kimberly Greenberger - Citigroup: On the product cost increases, is this, you know, fuel surcharges that are sort still lagging through your merchandise margin or are you continuing to see product cost inflation around the world?

The product cost, the higher costs really are in a couple of specific categories, Kimberly. And as we move into spring '09, as we developed the inventory plans and have costed out the product, we're seeing less pressure, in fact, and it's really about the categories that we have positioned in the fourth quarter. It's a bit about mix.

Your next question comes from Jeff Black - Barclays Capital. Jeff Black - Barclays Capital: Jim, could you flesh out your thoughts on pricing heading into next year? And specifically, what kind of decreases are we talking about in terms of AUR? And what kind of value proposition are you shooting for vis-à-vis Hollister versus Aero? And finally, if Joan could also comment on just the margin impact of all this. I mean, is this a sub-10 margin going forward? Do you think it's 12? Is 15 ever possible? Any thoughts around that. James V. O'Donnell: First of all, the way we plan pricing for spring of '09 is that we are going to continue - we've always been a value house. I don't want to be redundant, but somehow I think we got placed in a category that I don't know that it ever was really the DNA of American Eagle. We always been a value provider, and our values have really been more at our base price or our regular price business. But in these types of times where consumers are looking for more values that are really recognizable, what we've done is, as I stated earlier, we actually have identified categories of merchandise that are desirable - this is not commodity product; this will be desirable, trend right product - that we purchased early in the purchasing cycle and we're able to leverage our cost accordingly so that we know what we're going to plan into, we know what the selling price is going to be on the promotion, and hopefully we will be able to mitigate some of the erosion in the merchandise margin, and hopefully that will flow to the bottom line. We think that this approach is going to be a difference maker for the American Eagle brand. I'm not - and I never have been - one address competition by name. They run their own business their own way. I feel strongly that what we're doing at American Eagle and the way the consumer responds, we've had a number of different high-powered promotions that we put into effect from back-to-school up until the current time, so we really know what works and what doesn't work. And what we need to do now is to continue to do what works, but also be more cognizant and plan into so that we mitigate some of the margin erosions in '09 so we can take the operating margins and get them back to a position that we deem to be appropriate for American Eagle. I don't know if you want to put any color around that, Joan, as to where we feel we can get to in '09.

As Jim said, the first thing we're looking to do is stabilize our profit margins, Jeff, and certainly our longer-term goal is to return to a mid to high teen operating margin and that remains our goal. But as we navigate our way through 2009, with the strong assortment strategy and the value strategy that Jim has articulated, we will continue to drive conservative inventory levels, our expense controls, and really manage our capital plans so that we can navigate our way back to those higher teen margins in the longer term.

Your next question comes from Paul Lejuez - Credit Suisse. Paul Lejuez - Credit Suisse: Just a quick follow up on Kimberly's question. With the slower growth for next year, can SG&A dollars actually be down year-over-year versus '08? And then second, Jim, just wondering on the aerie openings, have you already committed to those 17 stores? Just wondering if the pull back was just basically across the board on everything that you haven't yet committed to. James V. O'Donnell: Okay, I'll take that first, Paul. On the aerie, the 17 that we commented on are signed deals. They were deals that were already in the pipeline as well as the [12] for American Eagle. The remodels are all tied into lease renewals, so we're not remodeling any stores other than ones that we need to remodel based on renegotiated lease terms with the developers. So we are committed to those. And actually, the stores that have been approved and that we are moving forward with for American Eagle as well as aerie, the thresholds for profitability are very attainable and the economics on it are very favorable, even in a challenging economy. So we feel pretty good about that. I just don't feel that this is the time to be, let's call it cavalier, and be out there opening up 30 or so of American Eagle and 50 of aerie and maybe a couple MARTIN + OSAs and so forth. I just don't think it's appropriate and I don't think it's a good use of cash at this particular time. But we'll still be out there with some new properties, and we're going to continue to be very cautiously optimistic about 2010 as it relates to store growth. But, you know, we'll be looking at those deals some time in the early part of next year. But time will tell. We have to continue to monitor the current economic climate and we're going to proceed accordingly, and we're going to be very judicious, the same way we are with expense control as well as our inventories.

On SG&A, we would expect modest growth, Paul, in SG&A for 2009, but, as we're looking on a cost per foot basis, our goal is to hold that flat. Paul Lejuez - Credit Suisse: Jim, just one follow up. Would you reconsider what's the right size of the fleet for the American Eagle brand, just given what we're seeing in this environment? Does it change the way that you think about that? James V. O'Donnell: Sure. Right now, Paul, I think the American Eagle brand is almost at its max. Even with conservative, maybe anywhere between, let's call it 10 or so for 2010 and maybe 2011, I think that'll be about cap us out. Including Canada, we're over 1,000 stores right now. My goal, if we can include Canada, we'll probably be closer to 1,200 - 1,150 to 1,200 - no more than that. In the United States, we're pretty much there. There are a few new projects coming online that look interesting, but I have to tell you that there isn't anything really compelling out there that says I mean, we had about 35 deals that we looked at over and above the 12 that I approved, and there was nothing there that led me to say we really needed to have those in the fleet.

Your next question comes from Brian Tunick - J.P. Morgan. Brian Tunick - J.P. Morgan: I guess, Jim, for you first, just maybe talk about your thoughts on the buyback program. So what's the catalyst? You've reduced CapEx even further. Is it all auction rate securities or are you waiting to see something necessarily turn in the economy? And then maybe Joan, just talk about the MARTIN + OSA and aerie impact on earnings for the third quarter - accretion, dilution, and do we still think MARTIN + OSA can break even in the fourth quarter? James V. O'Donnell: Well, for my segment, Brian, yes and yes. The buyback right now is basically we're continuing to watch what's going on. I think it's rather obvious. You all are very close to what's happening in the marketplace. But this uncertainty in the auction rate securities environment has led us to be very conservative as we look at share repurchase. So we think right now we need to be conservative with our cash. If things change and some of these auction rate securities loosened up, if you will, and became fluid, we would continue to look at share repurchase, as we have in the past, and hopefully we'll continue to do so in the future.

And with respect to aerie and MARTIN + OSA, let me take MARTIN + OSA first. As we said earlier, we're pleased with the sales performance that we've seen in MARTIN + OSA and it's been a positive response to merchandising, but certainly lower mall traffic to date in the fall has had an impact on M + O as well. So I would expect the loss in MARTIN + OSA to be higher than the $0.15 loss that we have expressed prior to this, and we will share that with you once we get through the fourth quarter. As Jim mentioned, we are holding off on new stores for MARTIN + OSA in 2009. With respect to aerie, aerie essentially had a nominal loss in the quarter, and it was no more dilutive than it was last year. So based on aerie's performance, we continue to be pleased with the assortment. We are expanding categories and we believe that brand continues to have excellent potential. If you look at aerie on an annualized basis, which is how we think about it, as it's a new store, a new brand, we only have 40 stores that we expect to comp this year in our base. We're essentially breakeven, so it's a new concept that's really taken off in a strong way.

Your next question comes from Jeff VanSinderen - B. Riley & Company, Inc. Jeff VanSinderen - B. Riley & Company, Inc.: I wonder if you can talk a little more about your strategy to turn around the girl's business, the initiatives that you're undertaking there. In other words, what specifically do you think is wrong with that business, how do you fix it? And then also if you can maybe comment on your new head of women's design and are you set in terms of women's merchandising personnel at this point? James V. O'Donnell: Well, women's across the board category-wise has been less than acceptable; I think it's pretty obvious. So what we've done is we've taken a look at it and say, okay, what is it that we have control over that we're not satisfying the female consumer? And primarily what we're looking at is a mix of what we would call fashion-right product as it relates to the American Eagle core essentials, which are more basic. And by changing that mix, which really was about 80/20 - 80% being the core essentials and 20% being a fashion mix - we've now moved that to 60/40, so we've taken a stronger stance as it relates to the balancing of what we think is fashion right. Now that primarily would be in tops as well as in jeans. Our jeans business has been one of the most disappointing categories and we feel that the new spring assortment is actually right on. We have the silhouettes from all the tests that we've run, all the focus groups and so forth, that we feel very strongly that we have the right silhouettes, the right washes, all the right finishes to be back into the jeans business in a big way. As it relates to tops, it's a combination of both fashion right as well as price points. And, as we stated earlier, I think we're going to be in a very good place as it relates to our tops and that will improve our UPTs and it should have a positive effect on also satisfying some of the demand that's out there from the female consumer. Overall, it's one of these things that you're going to have to take a look at for yourself and you'll be able to see it. It's going to be rather obvious that you won't have to seek and find; the product is going to be front and center. We're very proud of the styling of the product as well as how we price point it. And we plan promotions around those key fashion categories that should be very powerful. As it relates to the head of design, the young woman who's now heading up design has been with us. It was an internal promotion. She was working on our 77kids startup, but she has very extensive experience in women's, experience outside of American Eagle as well as women's with American Eagle. And she clearly understands what the 15 to 25-year-old young woman, what she wants, and she has the ability to identify and get the assortments right. And she works very well with our head of design, LeAnn Nealz, and I think they'll be a great tandem in repositioning the women's business. As it relates to our design teams and our merchant teams in women's, we're 100% up to staff. In fact, if anything, we have built in some backup talent for the first time, so I'm very pleased to be able to say that.

Your next question comes from Jeff Klinefelter - Piper Jaffray. Jeff Klinefelter - Piper Jaffray: Jim, I just wanted to clarify, on your new store potential, domestic potential, I think back at your investor meeting you talked about the approximately 100 new store potential remaining for the American Eagle brand, and I thought that was the domestic market and maybe you were including Canada as well. But I'm just curious. That was the outlook at the time; given what's happened in the marketplace, you're kind of recalibrating that to be maybe 10 this year, 10 next year and capping it at a little bit lower number, number one. Number two, are you seeing now as you go through these renewals and look at other deals, do you anticipate a significant number of stores that you're going to be able to renew over the next few years given your store opening cycle in the late '90s, that your average cost is going to start coming down or is the leverage a little different with the developers? Are they kind of leveraging their A properties against their C properties to help maintain some rent stability? James V. O'Donnell: I'll take the first part. When I've looked at what new deals are being presented, I'm not seeing a great deal of quality, to tell you the truth, Jeff, and so that's changed some of my thinking somewhat. The other is that I'm thinking a little more of a conservative approach as to where we place stores in proximity to existing stores and in seeing can we really maximize our existing properties without having to go out and expose ourselves to new store locations? So that's had some bit of an effect on the previously stated 100 versus a number that's going to be less than 100. So yes, my view is a little more conservative as it relates to new. As it relates to remodels, the remodels are really driven by how many lease renewals come up each year, and they average anywhere between 35 to 40, 50 max, because it all depends on when we've taken these stores. So if you think about us opening up 40 to 50 stores a year, every 10 years, 40 or 50 of those stores are going to come up for renewals. We're very fortunate. Most of our stores are very profitable and so therefore the renewal percentage is very high. Even though we're looking at certain stores now as to whether we want to continue operations, that number's usually very low and it easily averages somewhere between a low 6 and a high of 10 closings a year. So that's kind of how that cadence works for American Eagle as well as the renewals for existing properties. Jeff Klinefelter - Piper Jaffray: So, Jim, are you seeing rates coming down? Do you have leverage now? We're hearing from a lot of retailers that it's quickly challenging and that your potential to close stores is certainly a leverage point to get those rates down or even go to all percent rents. James V. O'Donnell: Yes. Well, let me kind of address it in two different ways. One, as far as the leverage, as a strong brand, we've always had leverage. And I don't really want to sound self-serving, but we've always negotiated very competitive deals, if you will, with the developers. We have a good reputation because of our performance with the developers, so we've leveraged on that. Yes, the current economic times have given us some additional leverage, especially in our renewals, so we're able to take advantage of that. We run right now - there's only one developer that does not give TA and it's not one of the largest developers, so we run about 94% of our deals, both new and remodels, have some sort of tenant allowance or rent abatement in them. So our economics are very competitive and also we leverage as much as we can as it relates to the economics of the deal. But being a little more selective has also given us some additional leverage. There's a number of vacancies out there right now that the developers have to fill, and there aren't that many takers. So I think aerie and potentially 77kids will give us additional leverage because those two brands, especially aerie, which we've been very conservative with. But we're really going to take the wraps off aerie in 2009; we're not going to be overly aggressive, but we've seen signs that really tell us that this brand can move forward in a very substantial way, and the plan is to get our assortments right for 2009, which we are doing, and then get back in a big way in 2010 and going forward with probably about 40 or 50 stores per year to about a 500-store chain for American Eagle. 77kids, I don't want to get too enthusiastic off some of our early results, but they've been very favorable and we'll continue to monitor that. We're getting smarter every day as the consumer is telling us more and more what they like and what they don't like, and so we'll keep a watchful eye on that potential brand launching. Hopefully that'll be somewhere around a 2010 that we'll be able to unwrap that one and roll that out. So we'll be able to leverage up on those two brands. And MARTIN + OSA we're not saying too much about, but only because we're being very conservative. But some of the, you know, up and through September, we were on track to meet our 2008 goals, and so we just got sort of sidetracked somewhat. I'd like to think it's a little bit of the economy; I don't like to blame too much on that age-old comment that's been bandied around. But we are looking at our assortments and they're quite good, and women's especially. We have big upside in a couple of major categories that we're going to push forward in MARTIN + OSA in 2009 and going forward, so we'll see how that sets up. On the real estate side, we're in a favorable position. That's the good news. The bad news is we're not opening up that many stores.

Your next question comes from Adrienne Tennant - Friedman, Billings, Ramsey & Co. Adrienne Tennant - Friedman, Billings, Ramsey & Co.: Along the lines of MARTIN + OSA, clearly at this point the old metrics are out the window so, as you go into '09, how committed have you been to spring inventory for MARTIN + OSA? And then what would be the new go, no-go decision; what would be the new metric and in what timeframe? James V. O'Donnell: Good question. The spring inventories have been committed to and signed off on and are in the process of being manufactured, so we have not deviated. It's still a conservative approach on our inventory levels, but we feel they're very appropriate. We've taken some positive steps in accessories where we think there's a huge upside. And we've also taken some positive steps in men's. We'll continue along the same lines with our women's because we've been quite pleased with the results of our women's categories. The benchmarks, they've been recalibrated, but they haven't been recalibrated all that much. We know with the benchmarks, they're still going to be in dollars per square foot. We know how much we want to reduce the loss in 2009, and it's very attainable, but it's still a very aggressive benchmark. Failure to meet those benchmarks - and that is dollars per square foot and a dramatic reduction in the loss for 2010 with a move towards breakeven in 2011 - we need to beat those benchmarks or I'm going to have to make a difficult decision. Adrienne Tennant - Friedman, Billings, Ramsey & Co.: By 2010, you mean fiscal 2010, so in calendar '09 those benchmarks would be met, the $375 and the at least run rate breakeven? James V. O'Donnell: The $375 will be the minimum dollars per square foot and we're looking at the overall reduction of our loss for 2009 - I don't want to give the exact number out, but it's fairly substantial. Adrienne Tennant - Friedman, Billings, Ramsey & Co.: And then if you could just help us out. I know there was a big marketing push. We've seen a lot of it with MARTIN + OSA in the fourth quarter. How much in dollars was that and how much will the marketing budget for MARTIN + OSA be in spring? James V. O'Donnell: The heavy up for MARTIN + OSA for 2008 fall holiday was $2.5 million. We're looking at the results of that heavy up campaign. It's still early on because the big measurements will come post Thanksgiving and into the holiday season, and that will be the driver as to what kind of levels we want to put on marketing going forward in 2009.

Your next question comes from Christine Chen - Needham & Company, LLC. Christine Chen - Needham & Company, LLC: I wanted to ask, I understand the focus on value pricing given the environment, but how do you balance that with, perhaps, training your customers now to expect sale and not want to buy anything on full price? And I know this is something everybody's struggling with these days. James V. O'Donnell: Well, that's well said. That's a challenge. You know, the old normal is gone; there's a new normal and we have to establish what that is. It's going to be a combination of price and appropriate product that go hand in hand. So if we look at appropriate product first and then look at what are the motivators for us to encourage the consumer to purchase, it's going to be one of our big challenges. But I think when you're looking at style, fit and value, which is the mantra of the American Eagle brand, you still have to be able to make sure that the product has not just the value and not just the style, but also that you have the appropriate quality and fits. And you combine all three of those together and I like our chances. But is price going to be important? Absolutely. Do you have to be the lowest price in town? No, I firmly believe that. And the way we'll win in our category with our consumer is to make sure that we're styled right and priced right, and there are price points that are acceptable in the marketplace. We know that now from over the handful of months that we've been in this promotional mode, that have told us what are the motivators, what are the triggers, that the consumer will respond to. Christine Chen - Needham & Company, LLC: And then I guess if you, as you're looking at perhaps lower price points, how do you balance that versus quality if you're now planning to have items at a lower price point? James V. O'Donnell: You do that by committing earlier, so you can give the manufacturers longer lead times so they can give you better cost. It's simply as it works.

Your next question comes from Todd Slater - Lazard Capital Markets. Todd Slater - Lazard Capital Markets: The first question, I'm just wondering how - if you would maybe comment on what appears to be larger pieces of the mix at some higher prices, like more sweaters at $69.50 in the mix than we've seen and denim at $49.50. I'm just wondering how that squares with your value proposition and why that maybe isn't offsetting some of the IMU pressures elsewhere? And then I was just wondering if you could talk about your new floor set that hit last week; that looks improved and I'm just curious if you've seen any traction or favorable product reads on any part of that new assortment. And then lastly, what trends you might be seeing at AE.com in light of some slowing in that sector. James V. O'Donnell: Well, on AE.com - I'll take that first - our sales cadence continues to be very strong. We're very pleased with our Direct business, and that's all I'll comment on AE Direct. As far as the comment on price points, our jeans are still $29.50, $39.50 and $49.50. In fact, for spring for women's our highest priced jean will be $39.50. Sweaters, you know, when we built the sweater line we felt that we would be very competitive. Our sweater line is actually - the assortment is wider than it was a year ago and so therefore we still have very competitive price points. And when we promote sweaters as we have and will, actually, in our holiday promotional cadence, we actually have a very strong response. It's our job to experiment with certain price points. It's not that we're raising the overall level. When we have a higher price point than maybe that's normally expected at American Eagle, it's one that we haven't bought in very heavily. We test the market. We already have a markdown cadence built in for it if the consumer doesn't respond. And it's also to put a little more make into the product, so we see how that goes. Is it probably the best strategy in the environment that we're currently in? In hindsight, probably not, so we've recognized that and you'll see that in our spring assortments. In our major categories, they're all very competitively priced. Todd Slater - Lazard Capital Markets: And then just in terms of the new floor set? James V. O'Donnell: Cautious optimism. It's actually - women's for the first time has shown that the consumer has responded. We're still not where we'd like to be, but we have dramatically reduced - in some of the weaker categories that are cornerstones, we've made dramatic improvements. Tops, fleece, sweaters, and we've seen an improvement in our jeans business. So men's continues to be good. Our men's business has been strong all year and it still continues to be one of our strengths so far for 2008. But yes, there's been a response, it's been positive, but I don't want to get out there and say we're waving any flags just yet. But I'm pleased and I think as we move forward we're going to get smarter. I think lessons learned from the second half of '07 through first half, if you will, first three quarters of '08, I think we're going to be a better company. I think we're going to come into 2009 a much stronger company, much more aware of what we need to do, and deliver the appropriateness that the consumer expects in our product and service.

Your next question comes from Linda Tsai - MKM Partners. Linda Tsai - MKM Partners: Joan, can you give us some more color on what type of IT initiatives will take place next year and are these a continuation of existing projects or are they new? And then what kind of efficiencies or savings can result from these investments?

Well, what we're doing in IT for next year is we're completing our POS implementation project in Canada, so that'll finish off for us. That has been a very important project for us with respect to understanding, providing the customer with an ability to get product from the store. We have an initiative there that we think can be a top line generator. As well as it helps us understand selling patterns as well as scheduling our payroll around that, so that's an improvement that we expect to see. We're also implementing a merchandise planning initiative that serves our multi-concept brand and multi-format stores within brands, so it's something that helps us provide differentiated assortments for customer based on the uniqueness of how a store [fell]. So those are two very important initiatives for us and we feel will both drive top line as well as help us in the margin on expense area. Linda Tsai - MKM Partners: In terms of the merchandise planning initiative, is this just kind of an extension of regionalized assortment planning? Is this down a little deeper?

This is a little deeper because what it will help us do is, as you know, we have several aerie formats and as we try and make that situation less complicated and enable our planning teams and merchants to provide balanced assortments for specific areas and specific size of store, as an example, it will help us buy inventory in a more efficient way for those formats. Linda Tsai - MKM Partners: And then just to follow up on aerie, in terms of the cost reengineering, how long have you been doing this and then what kind of ROI improvement does this create for aerie, and then how does that compare to the ROI of AE stores?

Aerie, currently the individual stores are running quite nicely and annualizing to generate a breakeven at this stage. What we know about aerie and when you think about aerie, you have to think about it more broadly as a concept that has product within the American Eagle store as well, and from that perspective, it's very profitable and very comparable to American Eagle performance. So that in and of itself helps us leverage aerie costs. What we're doing specifically in costs related to aerie are, as the brand gets some scale, we have packaging opportunities; we have really scaled back on some of our new store opening packages because we weren't seeing [inaudible] the ROI that we would have expected and we didn't need to incur those costs to get the run rate that we had hoped to achieve. So it's really about specific cost initiatives within operating the aerie store as well as the packaging and other type of supply costs for aerie.

Your last question comes from Richard Jaffe - Stifel Nicolaus & Company, Inc. Richard Jaffe - Stifel Nicolaus & Company, Inc.: Jim, you had mentioned better decision-making, process improvements leading to better decisions and if you could give us some sense of what kind of decisions we're talking about here and if there's evidence that we could look for, either in stores or in the numbers. And then if we could apply that to aerie as well, a business that is - given its critical mass and its distribution through all these channels, direct stores and aerie stores, could we better understand the accounting to understand why it's breakeven this year and presumably hopeful for a profit next year? James V. O'Donnell: First of all, on quicker decisions, we basically looked at how we work in the areas of merchandising, design, production sourcing, those three categories, and we've taken some of the complexities in the process and streamlined them. We have people working more in what we call a team approach. We've brought in some outside assistance and had them take a very clinical look at how we work and why are we consistently behind as it relates to being on calendar, which really is the tool that is the driver for efficiencies within the American Eagle brand as well as our other brands. And so the reengineering and the reorganization of the teams and the simplifying of some of the decision-making with smaller groups have provided us the efficiencies to make our decisions quicker, enabled us to get our orders to our manufacturers earlier, which gives us leverage with the manufacturers as it relates to first cost, and it also provides us the ability to bring the product in via ocean versus having to do the last-minute and fly it in at increased rates. So that's the simple answer, but it really has been a rather intense initiative that we've been undergoing right now. Actually, it started last year and we are now seeing for summer of '09, which we just completed, we are totally on calendar, all departments, all orders placed, and it's very gratifying. And people are working less hours but they're being more productive, and we've seen our turnover decrease dramatically. So it's a good thing.

Richard, with respect to aerie, the comment around aerie is aerie as a brand is very profitable when you look at the volume across all of our channels. We have AE.com, we have the retail stores, and we have stand-alone stores, and we have aerie within the American Eagle store. So overall it is profitable and very consistent with the American Eagle margins. But when you look at the annualized run rate of individual stores, if you look at it on a fourwall basis, that's what we're driving top line and we're also looking to get some more cost efficiencies out of the store to help improve the profitability there. Richard Jaffe - Stifel Nicolaus & Company, Inc.: So your comment on breakeven was really just the aerie stores as a stand-alone business?

That's correct. James V. O'Donnell: And a profitable business if you include all of intimate apparel?

That's correct. Richard Jaffe - Stifel Nicolaus & Company, Inc.: I'm sorry, can you repeat that, Jim? James V. O'Donnell: It's a profitable business if you include all of intimate apparel. That would be what's in the sportswear stores as well as what's in the stand-alone stores. When we say breakeven, it's really the 114 stores that we have in the stand-alone. Richard Jaffe - Stifel Nicolaus & Company, Inc.: So the 114 stores have the benefit of 1,000 stores worth of sourcing and distribution, but have the overhead and cost structure related to those four walls? James V. O'Donnell: Well said. Yes, exactly right. What we need to do, as I've stated in my comments and Joan has also reiterated, is that we have to get greater productivity from the stand-alones. And that is interpreted as we need to take and widen our assortments. We need to flow in product more often. And we're going to be doing that; in fact, we're doing it now. Our holiday set, we're very pleased with some of the early results. And as we look forward into spring - which I had the chance to look at just last evening - we've really come a long way in having wider assortments, still staying within our core elements - that's the undies and the bras - but we're getting into product within dorm wear, with some fleece, that's very appropriate for the aerie brand that is not duplicated at the American Eagle sportswear store. Our aerie fit line has been expanded, which is very unique, that we think has a tremendous upside. So we have to give - the young consumer in our focus groups on average say we really love the brand; that's a quote. But the big but is we'd like to see more product; we'd like to see more assortment. And that's our challenge and that's what I've charged the group with, and they've done a great job. I have to give them the kudos they deserve. They've worked very hard. We have a very small aerie team, both in design as well as in merchandising, but they're very talented, a very talented team. We're very proud of them. Betsy Schumacher who's our chief merchant in aerie has done a terrific job and really, I think that our assortments for holiday are very appropriate and our spring is going to be quite good. And that's why you hear that tinge of optimism for the aerie brand even though we use terms like breakeven and so forth. But we're looking at an ongoing 12-month out in front and all signs, from everything we know right now, is leading us to be quietly optimistic. Richard Jaffe - Stifel Nicolaus & Company, Inc.: And did you comment on MARTIN + OSA's contribution or loss this year as well or should we wait for fourth quarter for that?

What I commented on was that we would expect it to be higher than the guidance that was given, but we'll give you some specifics as we get through fourth quarter.

Okay. Thanks, everyone, for your participation today, and we wish you all a happy holiday.

This does conclude today's teleconference. You may disconnect your lines at this time, and we thank you for your participation.