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

Paul Lejuez - Credit Suisse John Morris - BMO Capital Markets Analyst for Brian Tunick - J.P. Morgan Todd Slater - Lazard Capital Markets Richard Jaffe - Stifel Nicolaus Janet Kloppenburg - JJK Research Michelle Clark - Morgan Stanley Betty Chen - Wedbush Kimberly Greenberger - Citigroup Michelle Tan - Goldman Sachs Lorraine Hutchinson - Banc of America Dorothy Lakner - Caris & Company

Greetings and welcome to the American Eagle Outfitters Incorporated first quarter 2009 earnings conference call. (Operator Instructions) It is now my pleasure to introduce your host, Judy Meehan, Vice President of Investor Relations. Thank you, Ms. Meehan. You may begin.

Thanks, Rob. 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 first 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 will make certain forward-looking statements based upon information which represents the company’s current expectations or beliefs. The results actually realized may differ materially from those expectations or beliefs based on risk factors included in our quarterly and annual reports filed with the SEC. And now I would like to turn the call over to Jim. James V. O'Donnell: Thanks, Judy. Good morning. While the first quarter continued to be challenging, there are early indications that the business is stabilizing. I will elaborate further as I give you the results for the quarter. Sales declined 4% and comparable store sales were down 10%. This was the result of lower traffic and conversion. We also experienced margin pressure which led to a 58% decline in operating margins. We clearly have issues in our business that have yet to be resolved. They include further progress and assortments across AE categories and strengthening merchandise margins. That said, a sharp decline of the fourth quarter seems to have leveled off. Following are a few examples and proof points. AE women’s comp performance improved to a 13% decline from a negative 23% in the fourth quarter of last year. AE denim comped positively in both men’s and women’s, as well as other key categories, such as men’s tops, women’s dresses, skirts, accessories, and certain fashion tops. Traffic and conversion, while still negative, improved relative to fourth quarter. The conversion rate was 3% higher and the store traffic improved to a 3% decline from a 9% decline. AEO’s new concepts are performing well and met our first quarter earnings expectations. Aerie standalone stores delivered a positive comp of 17%. The bra business is healthy and growing and we continue to expand the assortment with new fits, styles, colors, and patterns. Aerie Fit, the work outline, is a rising star. Customers tell us that it’s differentiated in the market-place and truly complements the Aerie lifestyle. MARTIN + OSA comped at a positive 7%, driven by increased traffic and conversion. Leadership is focused on continuing to improve assortments with a more cohesive point of view for this customer. Based on the positive comp trends since the beginning of 2008, combined with the encouraging feedback from extensive consumer research, we remain committed to the M+O concept. Moving on to 77 Kids, while still a very small part of the business, 77 Kids is exceeding plan and steadily building its customer base. We’re excited about the first back-to-school collection that launches in late July. AEO Direct, one of our key growth drivers, achieved a sales increase of 26%. Our online strategy is designed to create a superior customer experience across selling channels. To that end, AEO Direct is fully integrated with our POS system for seamless, real-time inventory sharing. We are leveraging this technology to drive incremental sales through our store-to-door program, which has become a more meaningful contributor to the AEO Direct business. Customers and associates alike are becoming increasingly comfortable with store-to-door as a way to access extended sizes and online only colors and styles. The most popular store-to-door categories include denim, dresses, and bras. While I just outlined some successes, there are still critical areas of our business that need considerable work to achieve our targeted profitability and growth goals. First, we must continue to strengthen AE’s assortments, especially in women’s. The best-performing areas of our women’s business are those where we have delivered on-trend, differentiated fashion. For instance, our versatile knit-top styles and fashion dresses were among our best performers without promotional support. Denim is another good example. The positive response to our most recent denim collection bodes well for the upcoming seasons. Going forward, you can expect more fashion, more often. This fashion influx will span multiple categories from denim to tops to accessories. This will be balanced with powerful key item values that capture market share and drive volume. Now a word on customer connection -- we just completed another nationwide research initiative, speaking with more than 2,500 customers and non-customers across the country. The data confirmed that AE is getting credit for fashion fluency in dresses and fashion tops, as well as versatility overall. In addition, our perceived value also improved, which for this customer is a combination of style for the price. While we are encouraged by the positives, more important is the critical feedback, which we are applying to our design and our merchandise strategies. Before we move on to the financials, I would like to update you on some news regarding our international strategy. The company recently signed a franchise agreement with M.H. Alshaya, a leading international retail operator. Alshaya will open a series of American Eagle Outfitters stores throughout the Middle East over the next several years. The first store is slated to open in early 2010. As you might know, Alshaya is a very experienced partner with a proven track record of presenting prominent world-class brands in this part of the world. And given the youthful demographic of the Gulf Region, we believe there’s considerable opportunity for a casual, value-oriented sportswear brand like American Eagle Outfitters. It’s also important to note that this franchise arrangement does not involve a capital investment from AEO, yet has the potential for a significant return. Further, it requires minimal operational involvement and we will keep you posted as the project develops. In closing, the last 18 months have been a time of unprecedented challenges for AEO Inc. However, it’s also a time of unprecedented opportunity, regardless of the external climate. Our ability to capitalize on this opportunity is rooted in the strength of our product. Now I will turn the call over to Joan who will take you through our margin opportunities and financials.

Thanks, Jim. The first quarter reported earnings per share of $0.11 includes a tax benefit of $0.04 and a realized loss on the sale of investment securities of $0.01 per share. Excluding these items, EPS was above our recent guidance of $0.06 to $0.07. The tone of our business was better than the fourth quarter and several important categories showed a meaningful improvement. In addition, our expenses were well-controlled. However, negative 10% comps, combined with a lower merchandise margin, resulted in the earnings decline. Now I will review the quarter in detail -- within the AE brand, negative comps were due to a mid-single-digit decline in transactions and a lower transaction value. Our average unit retail price decreased in the low-single-digits. While markdowns increased over last year, our first quarter business reflected a more measured promotional strategy than in the fourth quarter. Our merchandise margin decreased 260 basis points. As we expected, IME was down to last year. This was due primarily to the AE brand. It’s important to note that current receipts reflect lower product costs, which should reduce margin pressure beginning in the second quarter. Also within margin, our first quarter merchandise plans were positioned higher than the sales trend. Consequently, markdowns were higher in the quarter. Overall gross margin declined 510 basis points due to the lower merchandise margin and the deleveraging of rent, which was caused by new stores and the 10% decline in comparable store sales. For the quarter, SG&A expense decreased $11 million to $159 million and leveraged 60 basis points to 25.9% from 26.5% last year. We are prudently managing expenses and have achieved some real savings in a number of areas, including advertising, services purchased, travel, and supplies. In addition, the timing of store maintenance initiatives benefited the first quarter. Our stores are operating efficiently and SG&A per square foot declined 14% to the lowest level in five years. Looking forward, we will begin to anniversary the 2008 expense reduction program in the second quarter, therefore we do not expect a similar dollar decline in the second quarter. That said, we will continue to evaluate our expenses quarter by quarter and balance expense savings with critical business investments to drive top line sales and ROI. For the year, we expect SG&A dollars to be slightly lower than last year. Other expense of $2.3 million was due to a lower rate of return on investments and a realized loss on the sale of investment securities. Now, turning to the balance sheet, first quarter ending inventory excluding the direct business decreased 4% at cost per square foot. This compares to a decline of 17% for the same period last year. For the second quarter, our average weekly inventories for the AE brand are planned down in the high-single-digits. Importantly, this is the lowest level since 2004. For Aerie, inventory is planned up in the double-digits, driven by expansion of our bra styles. As a result, consolidated second quarter inventory per square foot is planned down in the low-single-digits. Capital expenditures in the first quarter totaled $35 million, which was related to store growth and renovations, headquarters, and distribution center projects an IT initiatives. We continue to expect 2009 CapEx to be in the range of $110 million to $135 million. Now looking ahead, we are highly focused on strengthening our operating margin. We must establish a level of consistency in our sales performance and recover from double-digit negative comps. We will continue to position inventory conservatively and our second half merchandise buys reflect improvement in IMU. We expect this to be driven by lower product costs and savings in transportation. Lastly, we are not letting up on expense control. Now regarding the second quarter, based on our current view of sales trends we expect second quarter earnings per share to be in the range of $0.12 to $0.15. This guidance excludes the potential of additional impairments or losses related to investment securities. Although the first half of this year is challenging, AEO is profitable and remains in excellent financial condition with a healthy balance sheet and cash position. We know we have real opportunities in the second half of the year and are highly focused on strengthening our operating profit. Longer term, we are selectively investing in initiatives designed to capitalize on growth opportunities within the business. I want to thank you all for your continued support and believe in our company and our brands, and now we are available to take any questions.

(Operator Instructions) Our first question will be coming from the line of Paul Lejuez with Credit Suisse. Paul Lejuez - Credit Suisse: Thanks, guys. Can you talk a little bit more about the economics of the Middle East arrangement? Also wondering if you will have to alter the product at all or if you will be selling the same merchandise? And then just wondering if you are looking at other countries to expand into. Thanks. James V. O'Donnell: I am not at liberty to speak to the details of our agreement with Alshaya but as far as the mechanics of the assortments, there will be very little tweaking of the assortments. The climatic conditions aside pretty much call for our standard assortment. The only things we’ll be looking at, are there any idiosyncrasies within the marketplace that should be addressed within our assortments. We won’t be doing anything special for them. There might be some distortions as to increasing certain categories and maybe reducing other categories but other than that, we expect it to be very seamless. As far as looking at other countries the answer is yes, we are but we are going to take it a step at a time and right now, this is the very first step in the journey and we’ve decided to go with the Alshaya group as our partner in the Middle East with the potential of moving into other areas of the world where they also have a network. Paul Lejuez - Credit Suisse: Great, thanks. Good luck.

Thank you. Our next question is from the line of John [Morris] of BMO Capital Markets. John Morris - BMO Capital Markets: Thanks. Good morning, everyone. Two questions -- one for Joan on the SG&A. I think the expense controls came in a little bit better than we thought, so good job there. And you did comment about the expectations in Q2. Would you see dollars still down in Q2 on SG&A? Is that still a possibility? And then I think more broadly, looking at the opportunity for back-to-school, from a merchandising assortment perspective, where do you see the opportunities for back-to-school this year compared to last year? Thanks.

So real quick on the SG&A, John, in the second quarter we would not expect the SG&A dollars to be down. In fact, we would expect them to be up slightly but for the first half of the year, we would expect SG&A to be down. James V. O'Donnell: As far as back-to-school opportunities, John, it’s rather obvious the number one opportunity is our number one department and that is denim. As I stated earlier in the presentation, we were very pleased with our denim results early here in the first quarter. We really feel very strongly that the assortment that was put together, it really complements what the trends are for our 15 to 25-year-old customer, and we have built upon those trends right now and those assortments and we are actually tweaking the denim assortments to be even stronger by adding some fit systems and some new washes for BTS. But also combined with that, as I state earlier, we will continue to look at the fashion tops, honing in on the versatile aspect of it. The feedback from the consumer and our results indicate that we are making progress but we need to make more progress and that we still have tremendous upside opportunity in the knit-wear line in tops. And we will continue to look at dresses -- the dress business has been a pleasant contributor to our early spring business and we hope that it will carry forward into our back-to-school period. So I would say those three categories and layered in on top of that will be a stronger approach in our accessories business, both men’s and women’s. John Morris - BMO Capital Markets: Great. Thanks.

Thank you. Our next question is from the line of Brian Tunick with J.P. Morgan. Analyst for Brian Tunick - J.P. Morgan: Great. Thanks so much. It’s Ana for Brian. Good morning, guys. Just following up on SG&A, Joan, you said to expect SG&A dollars to be up slightly in the second quarter. What should we expect for back half? Could SG&A dollars be flatter? That’s my number one. And secondly, I was hoping you guys could talk about what’s going on with the men’s category. I believe it’s the second quarter that men’s is comping a little bit negatively. Is this more of a function of tougher comparisons in that business or is there something to call out in the assortment from a fashion perspective?

I’ll take the SG&A question first -- the SG&A for the back half of the year we would expect to put us in a position for the entire year to be down slightly, is the way you should think about that. And just keep in mind that last year we began our expense reduction program that the teams are committed to and got behind in a very strong way, and so we were able to achieve some real savings last year and we begin to anniversary that in the second quarter of this year. So we are continuing to drive expenses. We look to have them slightly down for the full year. James V. O'Donnell: As it relates to the men’s business, the only category that’s been really disappointing has been in the shorts business. You know, we have a very strong cache with the young consumer, male consumer, in shorts from whatever reason -- you know, this particular season, it’s been slow to come but I don’t think it’s going to be a disaster but I think we were anticipating more of a prolific sell-through in shorts. We have tweaked some of the styles for summer and we hope that that will help improve the shorts business. The men’s denim business has been good and it has continued to be good and our graphics business is good, so we anticipate that men’s will continue to move along in a positive manner but we do have to get this whole short issue back on track. Analyst for Brian Tunick - J.P. Morgan: Okay, got you. What was men’s comp in the first quarter? James V. O'Donnell: I don’t --

Men’s comp in the first quarter was down high-single-digits. Analyst for Brian Tunick - J.P. Morgan: Okay, thanks so much, guys.

Thank you. Our next question is from the line of Todd Slater with Lazard Capital Markets. Todd Slater - Lazard Capital Markets: Thanks very much. Good morning, everyone. I hear how important denim is but even with denim and dresses running positive, it doesn’t seem to be moving the needle all that much and I’m just wondering, what makes you fee confident that a positive comp trend in denim in the second half will make much of a difference without the niche or the top categories working? And maybe you can give us some data on any improvement in those other categories. And then secondly on MARTIN + OSA and Aerie, if you could just give us -- maybe provide some four-wall contribution information for both of those businesses. How are they doing relative to your expectations at that level? Thank you. James V. O'Donnell: Well, you may have misunderstood -- do we expect denim to be strong for the second half of the year? Absolutely. Is it the only category we are anticipating growth in? No, I mentioned that our fashion tops have shown a positive reaction in sell-through from our consumers. Part of the opportunity lies in can we continue to develop more versatile tops that are deemed to be a value proposition, and we think we are well on our way to developing that line. And we’ve done a good job of continuing to have the basics in our line but not have them dominate the line, so the tops will play a very important role in back-to-school, as well as holiday, as well as a category that we haven’t mentioned for the second half of the year and that is we have a very strong connection in our fleece business, which we anticipate will continue to both third and fourth quarter. Our major categories, we feel good about in both men’s and women’s. Todd Slater - Lazard Capital Markets: Do you expect more fashion or more -- the inventory to be more fashion or more basic in the second half in terms of tops? James V. O'Donnell: More fashion. Continue to have our standard basics but they will only be complementary. We really feel that the volume impetus will come from the fashion tops, landing more tops, fresher and newer more often. We have found that that’s a recipe for positive response from the customer, especially with the female customer.

And Todd, with respect to M+O and Aerie, both concepts met our internal expectations in terms of profitability for the quarter and we feel very good about how the assortments have been performing in terms of M+O, in terms of the women’s assortment. And then with Aerie, Jim mentioned Aerie Fit as well as our bra launches and our fragrance business in the first quarter continues to drive profitability for us. So those two concepts in the first quarter are on track to our expectations. Todd Slater - Lazard Capital Markets: Can you tell us what your four-wall contribution goals are?

We’re not going to be specific about the goals and we will talk about that more as we progress throughout the year. But suffice it to say at this time, that we are on track to those goals. Todd Slater - Lazard Capital Markets: Great, thanks.

Thank you. Our next question is from the line of Richard Jaffe with Stifel Nicolaus. Richard Jaffe - Stifel Nicolaus: Thanks very much, guys, and great operating discipline this quarter. I guess a couple of questions -- I just want to understand the lower initial markup and its really I guess an opportunity in the second half to reduce your costs so you can offer product at better values -- is that what you guys are talking about? And then if you could talk a little bit more about the contribution or sales per square foot at MARTIN + OSA and Aerie, given their improved performance?

Well, first on the IMU, Richard, and thanks for your comments on the operational control, the IMU as I mentioned in the first quarter and in the second quarter, we can see that new product receipts and the teams have been working diligently towards this, are coming in with lower product costs. And one of the things that we’ve been truly working on in a big way is to bring value to our customer and be very proactive about the value offering in an assortment and giving the production teams the time to work that through with our supply base is really enabling us to deliver what we believe is an assortment that has a stronger perceived value to the customer. So yes, we are working on the value and we are working on costs with given the teams’ longer lead times. We also have been able to lock in some opportunity with transportation costs, so we expect to be able to see the benefit of that really in a bigger way in the third quarter. So driving through all areas of the assortment with the lead times for the team. In terms of MARTIN + OSA at a 7% comp and Aerie standalone comping at a plus 17, we feel that that is setting us up for a good position, the first quarter in the year, and really don’t want to speak about it on a cost per square -- or on a sales per square foot for both of those concepts but just really are focused on continuing to deliver the assortment, bring variety to the assortment for both men’s and women’s and MARTIN + OSA, and for our girl and Aerie, and are very focused on bringing Aerie to deliver a positive contribution on the bottom line and for M+O to significantly reduce the loss from last year. Richard Jaffe - Stifel Nicolaus: Thank you.

Thank you. Our next question is from the line of Stacey [inaudible] of SP Research.

Thanks. A couple of things -- first of all, just on SG&A, my sense, correct me if I’m wrong, but my sense was the guidance called for SG&A dollars to be flat in the first half and I thought maybe they could be down low-single-digits. So they came down quite a bit more than I expected and I’m just wondering if you could address where the upside was and what was the amount of the timing benefit in SG&A in Q1? And then secondly and more importantly just on the IMU, kind of what level of benefit could we expect in Q2 and can you address Q3 and Q4, which is when I think your IMU was down 180 and 220 basis points last year, so can you kind of talk about those opportunities for improvement? And will you share at all the sales trends that are embedded in your Q2 outlook?

Okay. I’ll take those, Stacey. SG&A, the guidance that we talked about for the first half of the year was to be slightly down in terms of SG&A. That is largely due to a reduction in advertising, a reduction in travel, supplies, and some services, external services that we were able to negotiate favorable contracts for the business. What should fit in terms of timing, Stacey, from the first quarter is really around our store maintenance program and having the ability to get all that done in the first quarter, we would see that largely occurring in the second quarter, and then some timing of initiatives, particularly of with our AE Direct business, which are very critical to continuing the positive sales trend that we see there. All that said, as we look towards the year, again we expect SG&A expenses to be down slightly at this time. As I mentioned on my -- in my remarks, we look at this and work it on a quarter-by-quarter basis, and evaluate expense spend to the point of is it a critical expense that is critical to either a long-term initiative or a shorter term sales growth driver that delivers an ROI for us. So we look at it quarter by quarter. At this point in time, it’s down slightly for the year and we will continue to work it. With respect to IMU, we see less pressure in second quarter -- translated, that means we would not expect overall IMU to be down in the second quarter but less pressure than the first. In the third and fourth quarter, we would expect IMU to come to a positive for us, to be better than LY and in the third quarter and more so in the fourth quarter. And again, we see product costs as well as transportation cost opportunity making that happen for us and enabling that opportunity. When we think about now moving to the second quarter guidance, our guidance is really, if you think of it from the range that we provide, the low-end of the range is really consistent with the current trend of the business and the higher end would be a slight improvement in costs.

Current trend being last month?

Looking at it on a quarterly basis.

Okay.

Thank you. Our next question is from the line of Janet Kloppenburg of JJK Research. Janet Kloppenburg - JJK Research: Hi, everybody. I was wondering, Jim, if you could talk a little bit about your confidence level in the knit business, particularly in the basic side of the business, which I think is where you’ve had more resistance. I am wondering what your confidence level is and the product elevation there for the fall and if we could expect that [to follow the business] with those programs to improve. I’m also wondering if you could address your denim pricing -- should we expect that to be more value-oriented or do you think that given the styling, the improved product, that you will be able to attain the same level of AUI that you have in that category before? And lastly, I was wondering if you could tell us how you are planning your inventory levels for the company for the fall season. Thanks very much. James V. O'Donnell: Okay, Janet, I’ll take the first two, talk about knit tops, both current and moving forward, and we’ll break it down into two categories, one will be the fashion and the other is what we will call the more basic tops that we’ve been known for throughout the years. I am very confident in the -- in our ability now to develop the styles to differentiate ourselves in the marketplace today. It’s absolutely essential with pricing being what it is for the more commodity type product, which we would deem to be the basics of the business, so I am very confident because I’ve seen the sell-throughs in the first quarter at regular price and this is a first in 18 months, so that gives you a bit of confidence. Now, we like to think that that type of momentum can continue to move forward. I’ve had the ability to see back-to-school as well as holiday and I believe that it’s safe to say that we are very much on trend -- not ahead, but on trend. As you know from being in the business, right now it’s a print season and we’ve really nailed some unique prints in our fashion tops and they’ve been very well-received. We’ll continue to carry the basics, which we deem to be in the boyfriend line, in tanks and tees and so forth, but they will not have as prominent a position in the store as they had in the past because the -- especially with the young woman has told us as recently as the survey that I mentioned earlier that was conducted with 2,500 customers and non-customers, of which 2,000 of the 2,500 were female, they know we have the basics. They want to have their first impression when they walk in the store as the quote is what is new, and that’s what we hope to provide them with both in the physical presence as well as in the design elements that go into the product, so I feel good about it. And denim and denim pricing, very good question. I see our denim pricing primarily staying the same. You know, we are going to be in the $29.50, $39.50, $49.50 business. I don’t right at this particular point feel that we are going to have to go into a full-scale mode of promoting to move our jeans. Right now, we are not promoting jeans and I must tell you our sell-throughs for this early in the season are really -- they are gratifying. Could they always be better? Sure, but they are comping and they are comping on a regular every day prices. And we are seeing some of the newer styles that we introduced are the ones that are really providing the impetus for the comp improvement and knowing what I know as far as what improved watches and adding a couple of additional styles, we are only going to be stronger for third and fourth quarter, so feel very good about the denim business.

Janet, with respect to fall inventories, third quarter we expect to be planned down on average in the high-single-digits as well. And the point I want to make there is that we are operating now at some of our lowest inventory levels on a cost per square foot. We were at 2004 levels. The benefit of that, and one that the merchandising teams and Jim and I feel very good about, is that we have been able to manage our initial buys very tightly and in a real disciplined manner, which then sets us up to be able to trigger in and flow into some of the items that Jim is talking about, and some of the faster sellers. And it gives us that fluency that our customer is really asking us for. So feel good about the inventory position and it does enable us to have some agility as we see things turn on. Janet Kloppenburg - JJK Research: Lots of luck to you all.

Our next question is from the line of Michelle Clark with Morgan Stanley. Michelle Clark - Morgan Stanley: Good morning and thank you. Joan, I was hoping to ask the SG&A expense question in a different way, which is you leveraged on a negative 10 comp in the first quarter. Can you just discuss with us your leverage point as we move through the balance of the year and what the sensitivity is around that for a 1% change in comp? And then secondly, if you could share with us what your SG&A dollars would have been excluding the shifts in the store maintenance, if that actually had occurred in 1Q instead of shifting it out to the second quarter? Thank you.

Okay, Michelle -- our SG&A leverage point is clearly at a low-single-digit negative at a minimum, is how I would think about that if I were building a model. The shift of repairs and maintenance into the second quarter is a couple million to $3 million in terms of store refresh. So that’s a timing from the Q1 to Q2. We are also had initiative shifts from the AE.com business that supported -- supports some future growth opportunities for us and those at this time, it’s -- there are some costs in there. Not sure what in the second quarter will shift to the third quarter, so I am not going to comment on that dollar amount at this time. But clearly we can leverage on a negative comp and we did have some meaningful real savings in the second quarter or in the first quarter, pardon me. Michelle Clark - Morgan Stanley: Thank you.

Thank you. Our next question is from the line of Betty Chen of Wedbush. Betty Chen - Wedbush: Thank you. I was wondering, Jim, if you can speak a little bit to the shift that we are hearing in some of the tax-free holidays, how that may impact the second quarter versus the third. And then is there any way to give us a little bit more color around quantifying some of the IMU opportunity in the back half, whether that is from product costs versus transportation? Thanks. James V. O'Donnell: Well, on tax-free, you probably read or heard or both that tax-frees are going to be shifting primarily out of July into August, so it just will have a monthly affect, and just would shift into a more traditional back-to-school period. We’ve planned for both, both the shift out of July, which we feel we can mitigate somewhat with some events that we have planned, that more to come, and the other is that we have also looked at August and said how can we continue -- to continue to even capitalize even more so on some of the opportunities that August will bring, both from back-to-school and also from a tax-free event that will take place within a number of states throughout the United States. So we are very aware of it and I think we have a real good plan to mitigate some of the potential erosion in July and also capture a greater proportion of it in August which I think plays to our strength in retailing because it is much closer in to when the young people actually go back to school.

And with respect to the IMU, Betty, what we’ve said is that we expect product cost reductions in the third and fourth quarter, and we also have transportation savings that we are able to take some benefit from. And the closer in we get, we can give a little more specific guidance on that but that’s where we’ll settle in right now in terms of information. James V. O'Donnell: One of the things that I think I can help all of you with around is IMU, because I know that it’s a topic of interest and we are well aware of that. Some of the things that we’ve done that are in our favor -- first of all, there’s production available now that was not available a few years ago but having said that, there’s also some manufacturing that’s not available because factories have actually downsized. But keeping all that in mind, we are internally working in a much more productive way with our manufacturing network and that’s defined by we are placing more orders earlier -- come out of coordination -- in many cases now, we are actually signing off on the product and placing the order so production and sourcing is enabling our manufacturing network to get earlier lead times. For the earlier lead times, we will be getting lower costs. Now, it won’t happen in all instances but it is gradually happening across all categories and it’s just an add-on to already a competitive nature that’s out there in the manufacturing world currently. So we are taking advantage where we can but also we have to bear in mind, all of us, that we continue to have the quality issues that we face. We will not reduce our quality and also we are experimenting with some new fabrications that have a little greater cost built in, so we are trying to balance out both aspects but costs will come down, especially as we move into third and fourth quarter. Betty Chen - Wedbush: That’s very helpful, Jim, and just to clarify, to make sure we heard correctly, that overall IMU will not be down in the second quarter versus the year prior?

That’s correct. James V. O'Donnell: That’s correct. Betty Chen - Wedbush: Okay, and then I was wondering if we can get some more color around the metrics behind the comps for MARTIN + OSA and Aerie and if we are still thinking about Q3 of this year as sort of a milestone to reevaluate MARTIN + OSA? James V. O'Donnell: Okay. Well, Betty, it’s -- right now, I am pleased with the progress, I’m not thrilled with it. That said, our woman’s business in MARTIN + OSA has been very encouraging -- very. Our men’s business has not and -- but I have all the confidence that our men’s business, which is really the easier of the two businesses to correct, so I’m happy with the women’s business, we have upside opportunity with the men’s, and we continue to have tremendous upside in accessories. And we’re going to be in the accessory business in third and fourth quarter. That will not only add to top line but also improve our IMUs, and also our UBTs and all the other KPIs that we run the business by. So having said that, will third quarter be the watershed quarter? It will be a very strong indicator of how this brand is going to move forward as it relates to top line growth and also to profitability. Now, profitability for this year is reducing dramatically, as Joan stated earlier, our loss of last year of $0.21, so we continue to monitor it. It’s all built on very defined metrics, as we are measuring the progress at MARTIN + OSA. And as stated by Joan and myself, they have met their first quarter hurdle. Now, that’s one in a row, so we’ll see how it progresses forward but I would like to think third quarter will be a very strong indicator and fourth quarter could be the difference maker of really reducing the loss in 2009 versus 2008. As far as Aerie is concerned, we are very pleased with Aerie. One of the things that we struggle with somewhat in Aerie is we are constantly looking from expanded assortments. The customer feedback that we have on our latest research, they like Aerie. These young women like the brand. They want to see more of it. I mentioned Fit earlier in the presentation. This is a separator, a differentiator from the intimate apparel business and it gives the young woman one more reason to come in and we are expanding that line as we speak, and third and fourth quarter, especially third quarter, rather, you will see a real difference in the assortment in Fit. The bra category, which has been our strongest category, continues to be our opportunity category and we are really investing in a very serious way in that category. The underwear business, which is our day-in/day-out business, continues to be very strong. But we are seeing really strong indications now in our dorm-wear line and in some of our PJs and so forth, so Aerie has all the indicators both from a product assortment, as far as IMU and margin, to continue to move forward and meet the profit goals for 2009. Betty Chen - Wedbush: Great. Thank you very much and best of luck.

Our next question is from the line of Kimberly Greenberger of Citigroup. Kimberly Greenberger - Citigroup: Thank you. Good morning. Joan, if I missed this, I apologize -- did you quantify the savings you are expecting to see in cost of goods sold in the second half of the year? And if you could give us some indication of do you plan on keeping most of the savings for your margins or are you going to balance that with investing, you know, like you said in the higher quality fabrics that might cost a little bit more? James V. O'Donnell: Well, as far as the fabrics, the higher quality fabrics, we are looking at improving some of our knit fabrics but they will not dominate the line so therefore they will not have a dramatic negative effect, if you will, on IMU. But I do think it’s essential for us to continue to develop fabrications that are deemed to be very desirable but also differentiate us away from the commodity players in the business. We will, and I’ve been very public about this -- we will not be the lowest price in town and there’s no way that we want to be the lowest price in the marketplace. But in order to be a profitable specialty apparel retailer, we have to be able to have that difference factor. Some of these new fabrications, some of the new programs we have in dresses and prints and so forth, they have been a big difference maker. Now, we have to continue to be able to be smart and be able to not only develop these fabrics but also get them at acceptable costs so that we can still continue to be a value provider for product.

And Kimberly, with respect to the quantification of the cost savings, we didn’t say specifically. What we said was that we expect to see it, IMUs to improve above LY in third quarter and more so in the fourth quarter. And as you know, a piece of that is about the selling mix and so forth and that’s why it just wouldn’t be a meaningful number right now to quantify. Kimberly Greenberger - Citigroup: Okay, thanks, Joan. Jim, I just have one follow-up for you -- it sounds to me like you feel good about denim, dresses, skirts, accessories going into back-to-school, and then I guess some select fashion tops. Is there a point over the course of the next six to nine months where you will feel incrementally better about the knit top category, or do you think it is sort of a steady progress month by month? James V. O'Donnell: Well, that’s a good question, Kimberly. I don’t want to be over your fork, here -- we did have a minus 10 comp, so -- but we are seeing things change as we move along, you know, in this business, day to day. But I think the top business will -- and you have a good eye in the store -- I think you are going to start to see for the third and fourth quarter a change on how we do business and how we develop our tops. You know, we talk a great deal about knits but we’ve had a strong acceptance in wovens in both men’s and women’s and we’ll continue to invest in those two categories. But we all know the knits drive the business, so I think -- you know, prove me right or prove me wrong by visiting these stores for our third and then fourth quarter and I think you will see a substantial difference. You know, if you want to reach out to me personally, feel free to do so. Kimberly Greenberger - Citigroup: Great. Thanks, Jim, and good luck for back to school. James V. O'Donnell: Thank you.

Our next question is from the line of Michelle Tan of Goldman Sachs. Michelle Tan - Goldman Sachs: Great, thanks. Most of my questions have been answered. I was wondering if you could just give us an update on the long-term store and sales potential that you see for the Aerie brand, and then also any color on how sales are trending so far in May. Thank you. James V. O'Donnell: Well, we don’t comment on current business but was your first question what we see as far as numbers of stores growth for Aerie? Michelle Tan - Goldman Sachs: Yep, growth in terms of stores and sales base. James V. O'Donnell: Okay. Well, we will probably be looking at next year somewhere around 20 to 25 new stores for the Aerie brand. Right now, we have enough information about -- we will have by the end of this year somewhere around 140 stores open across the entire United States as well as Canada. So we know where we have been successful and we know where we need to continue to improve but right now, I see tremendous opportunity for the Aerie brand in North America. Our Canada business in Aerie has been very good and we are going to be a little more aggressive in Canada than we probably are going to be in the United States, although we will be opening stores in the United States also. But that’s pretty much how I see the landscape for 2010. Michelle Tan - Goldman Sachs: Okay, great. And then anything on long-term total potential in terms of stores? James V. O'Donnell: I don’t see -- right now, the best guess in-house is probably no more than 500 stores. This is not a thousand-store chain, nor do we want it to be. I think that 500 stores, and that will be in North America, is about where we will cap out. There are opportunities in other parts of the world but we haven’t really explored those as of yet. We’ll see how that transpires over the next ensuring couple of years. Michelle Tan - Goldman Sachs: Great. Thank you and good luck.

Thank you. Our next question is from the line of Lorraine Hutchinson, Banc of America. Lorraine Hutchinson - Banc of America: Thank you. Good morning. I was hoping you could talk a little bit about the composition an ageing of inventory at quarter end versus last year at this time.

Okay, Lorraine, we feel very good about the composition and content of our inventory in terms of freshness. At the end of Q1, ending inventory was down 4% on a cost per foot basis and our clearance inventory is down 10% at the end of the quarter, so we are -- we were positioned well heading into Q2 and really focused in our category drivers. So I think we are set up well for Q2. Lorraine Hutchinson - Banc of America: Thank you.

Okay, Rob, we’re going to take one more question.

That question will be from the line of Dorothy Lakner of Caris & Company. Dorothy Lakner - Caris & Company: Thanks. Good morning, everyone. Just a couple of follow-ups -- one, you talked about the emphasis on newness in the AE brand, particularly as it relates to fashion tops, so I just wondered if there were any ways you were changing the flow for the back-to-school season, or going into the second half? And then secondly on MARTIN + OSA, just a little bit more color on what you are most pleased about, I guess particularly in the women’s business and where you think there’s the most opportunity. Thanks. James V. O'Donnell: Well, let me take the MARTIN + OSA one, since it seems to be a topic of interest -- in women’s, women’s denim, well-received; dresses, extremely well-received. We continued to be a store that is known for cashmere, and so the cashmere line of sweaters and tops have been extremely well-received, and some of our accessory categories, primarily in jewelry, have been very positive. Some of the upside would probably be more in women’s pants and in some degree, be some of the woven shirts. But on average, the women’s categories across all disciplines have been favorable. Dorothy Lakner - Caris & Company: Is it more of a fit issue on the women’s pants or styles? James V. O'Donnell: No, I think it’s more style, Dorothy. We have actually gotten very good marks on fit -- very good marks and I am very pleased. We’ve made dramatic changes into our fit blocks for women’s, especially for women’s bottoms. And that’s why I believe that the denim business has been positive and will continue to be positive. We will be changing out some of the washes because right now, we have carried the styles just a bit longer than we do at American Eagle and we are now starting to make some changes, and we’ll see for fall and holiday some great-looking washes for women, as well as our men’s denim business actually has been pretty good. The men’s business has been remiss primarily in a number of categories -- outerwear, knits, and in wovens, and in non-denim bottoms. So we’ve got work to do but I did see the fall line and I saw holiday and we’ve made very good improvement in fall and really dramatic improvement for holiday in men’s, and our accessories for the third and fourth quarter are going to be a major contributor with an improvement in bags, scarves, and jewelry will continue to be strong. And we are going to improve and get into co-branding in our -- in footwear, which we’ve gotten away from and we really need to get back into that category.

Dorothy, with respect to inventory flow, one of the benefits that we are seeing from the way we are managing inventory heading into the second quarter is we are able to, on a very tight base, flow into item selling to keep that fashion fluency moving and so we can identify styles and pull them in. Last week we were able to approve additional styles for our back-to-school buys, so this lean and sort of mean position of inventory is enabling us to be flexible and bring new fashion. Dorothy Lakner - Caris & Company: So more flows, more often?

More flows, more often, and we are really leveraging that trigger strategy that we have in the past but in a very diligent way here. Dorothy Lakner - Caris & Company: Great. Thanks and good luck.

All right, everyone, that concludes our conference call for today. Our next announcement will be May sales, which we will report next Thursday, June 4th. Thanks for your participation today and have a great day.

This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.