Judy Meehan – VP, IR Jim O'Donnell – CEO Joan Hilson – EVP and CFO

Jeff Klinefelter – Piper Jaffray Christine Chen – Needham & Company Janet Kloppenberg – JJK Research Adrienne Tennant – FBR Capital Markets Brian Tunick – J.P. Morgan Chase Jeff Black – Barclays Capital Kimberly Greenberger – Citigroup John Morris – BMO Capital Markets Jennifer Black – Jennifer Black & Associates Michelle Clark – Morgan Stanley Todd Slater – Lazard Capital Markets Dana Telsey – Telsey Advisory Group

Greetings, and welcome to the fourth quarter 2009 earnings conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded. 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 fourth quarter press release, it is available on our Web site, 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 represent the company's current expectations or beliefs. 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'd like to turn the call over to Jim. Jim O'Donnell: Thanks, Judy. As most of you are probably aware, last evening, we announced plans to close the Martin+Osa concept. We came to this difficult decision after an extensive evaluation and review of strategical alternatives. Although we made progress throughout 2009, the brand was not achieving performance levels that warrant further investment. At this time, it is in the best interest of our company and our stakeholders to focus our efforts on the brands that capitalize on their strengths and have the highest potential. I am extremely proud of the innovation, and hard work, and dedication displayed by the Martin+Osa team. And I'm really grateful for their achievements. And I personally want to thank our associates and external partners for their contributions. Moving on, now regarding our financial results, while 2009 began with numerous challenges, we were pleased to end the year on a high note. We delivered increases in both sales and margins in the fourth quarter. The merchandise initiatives that started early in the year have begun to bear fruit, leading to higher sales and stronger merchandise margin for the fourth quarter. Fourth quarter comparable store sales increased 5%, and non-GAAP EPS grew 74%, compared to 2008. During the fourth quarter, we are especially pleased with the improvement in the AE brand. Our assortments were stronger. And the price value offering was much more compelling than ever. The design and merchant teams have started making great strides in strengthening key businesses and recapturing market share. A good example, AE women's began 2009 with comparable store sales in the negative low double digits, at the end of the year with women's producing positive high single digit comps. The positive trend continued into February. It's quite a turnaround. They have restored a tremendous amount of runway. And our AE women's sales productivity remains 20% below its peak level. And our goal is to reclaim the lost productivity over the next few years. In 2010, we'll continue to drive men's and women's key businesses and regain our dominance across the knit category. In addition, we will build upon our number one position in denim, and go after areas such as footwear and women's jewelry. I'm optimistic about the future of the AE brand. It's clearly a favorite among 15 to 25-year-olds. AE represents strong value to our customers and great quality, and a comfortable realness that positions it uniquely against the competition. It's authentic, and it's genuine. We never try to be something we're not, and our customers have recognized this. As our fashion component continues to strengthen, we look forward to realizing the full potential of this powerful lifestyle brand. aerie continued to have gained traction with its customer base, producing a 24% comp increase in the fourth quarter. Our a-list loyalty members increased 40% to over 1 million current active members. Core businesses, including bras and undies, achieved strong increases in the fourth quarter. One of our primary goals for 2010 is to deliver four-wall profitability in our aerie store base, driven by 25% increase in store productivity. This will be achieved by fine tuning our assortment lines to make key categories more productive and efficient. Specifically, customer choices will be narrowed, but positioned deeper in our bra and undie businesses. In 2010, we will introduce new personal care lines and evolved dormwear by complimenting the basic business with more new (inaudible) in fashion. aerie fit is also a significant opportunity, which we'll see more of in 2010. I'm confident in the aerie plan. And I expect it to move towards potential profitability in 2010. Last year, we made strategic real estate investments. We opened eight new AE stores, including our Time Square flagship and 21 aerie stores. In addition to selecting – opening new locations, we're also evaluating all underperforming markets, and in some cases, consolidating our store base. This exercise will strengthen the overall store economics and drive profitability. In 2009, this led to the closing of 24 AE stores. And in 2010, we expect to close an additional 15 to 25 American Eagle stores. AE Direct, AE Direct annual sales increased 12% to $344 million, with a strong bottom line contribution. This channel continues to be a strong area of growth. In 2010, we are very focused on driving key categories on this by increasing extended sizes and unique Web-only businesses. We'll improve the site functionality and the overall shopping experience. And lastly, we are focused on driving site traffic and conversion with high ROI market initiatives, such as paid search and affiliated marketing programs. In 2010, our priorities are clear. We must build upon the current momentum and maximize the AE brand, recapturing market share. aerie must generate higher sales productivity and contribute to earnings growth. Our goal is to achieve steady margin improvement each quarter this year, with the minimum mid-teen operating margin targeted by 2011. We started this year with brand momentum, financial strength, and a game-changing attitude that will enable us to achieve our potential and position AEO for future growth and success. And two initiatives that you will hear more about during the year are 77kids and international. And now, Joan will review the financial results.

Good morning, everyone. First I'll provide highlights of the fourth quarter. And then, I'll review our outlook for the first quarter and 2010. Across the board, the fourth quarter demonstrated significant improvement from 2008. Sales increased 7%, driven by same store sales growth of 5%. Our holiday collections were on trend and received a positive response. The customer conversion rate hit record levels, increasing well above last year. AE women's comp increased in the high single digits, and men's declined slightly. Planned promotional activity was successful and drove the business during key holiday selling periods. The AUR increased in the low single digits, reflecting lower markdowns, compared to the prior year. This led to a 600-basis point improvement in the merchandise margin. Buying occupancy and warehousing costs de-leveraged 50 basis points, primarily due to rent and buying expense. In the fourth quarter, SG&A increased 10% to $237 million, compared to $215 million last year. We achieved operational efficiencies and experienced reductions in supply costs and advertising. The dollar increase was due to incentives, which were not earned in 2008 and were not accrued through the first half of this year. As a rate to sales, SG&A was 24.4%, compared to 23.7% last year. During the fourth quarter, we recognized an asset impairment charge of $18 million, compared to $6.7 million last year related to the underperforming Martin+Osa stores. Excluding impairment charges, the operating margin was 11.5%, compared to 6.6% last year. Now turning to the balance sheet, fourth quarter ending inventory increased 8% at cost per foot following an 8% decline last year. Ending inventory units were down 10%. And now looking ahead, our first quarter average weekly inventory at cost per foot is expected to be up in the mid single digits. This follows the 5% decline last year. First quarter inventory growth reflects an increased investment in AE denim to support the strong demand. And without denim, inventory is flat. It's important to note that total inventory units per foot are also flat in the first quarter. The increased inventory at cost is due to the higher mix of denim. In keeping with our reduced spending plans, capital expenditures of $127 million were half of the prior year's $265 million. As we continue with the reduced spending plans, 2010 CapEx is expected to be in the range of $100 to $120 million. Approximately one-half of 2010 CapEx relates to store investments. And during the fourth quarter, we generated strong cash flow ending the year with cash and investments of $896 million. As I look at 2009 as a whole, we made meaningful progress. Earnings strengthened in the second half, compared to the first. This was primarily driven by top line sales growth and merchandise margin improvement. We also sustained our 2008 expense initiatives and achieved a decline in expenses with the exception of variable incentive costs. 2009 SG&A per foot at $119 is the lowest level since 2005. Now while we are pleased with the progress, we have opportunity to return to our historical operating margins. In 2010, we expect margin improvement each quarter driven by top line sales growth and an ongoing margin recovery. Here are a few examples of our past margin recovery. It's imperative that we continue to deliver value to our customers, and at the same time, drive higher margin. We will focus on inventory buys in key performing categories and turn inventories faster in the balance of the assortment. And as sales of higher margin businesses such as knit tops and women's in general strengthen and become a greater part of our sales mix, we expect to see an increase in the overall merchandise margin. Ongoing expense controls remain a priority. For the year, SG&A is planned to be in the range of down low single digits, top low single digits, with increases tied only to variable selling expense. However, SG&A dollars will increase more in the first half reflecting the timing of incentive accruals and executive contracts. And lastly, closing the Martin+Osa concept allows us to focus our efforts and resources on the highest potential new businesses, and remove approximately 200 basis points of pressure to our annual operating margins. Now regarding the first quarter, we currently expect non-GAAP EPS to be in the range of $0.15 to $0.17. This guidance excludes $0.15 of estimated closing charges and an operating loss related to Martin+Osa. The first quarter represents additional progress and another step in the right direction leading us to our goal of mid-teen operating margin by 2011. Thank you, and now we'd like to open the call for questions.

Thank you. We will now be conducting the question-and-answer session. (Operator instructions) One moment while we poll for questions. Our first question is from Jeff Klinefelter of Piper Jaffray. Please proceed with your question. Jeff Klinefelter – Piper Jaffray: Jim, I just wanted to see if you could share a little bit more detail on the real estate strategy. It looks like you're working hard now on pruning the portfolio with some closures and remodels. Could you give some maybe metrics around your portfolio for the AE brand? And then what percent of your stores would qualify for either remodels or closures? And how do you look at that in terms of measuring up your average or acceptable productivity? Jim O'Donnell: Sure, Jeff. Well, there's nothing new for us to be evaluating the store portfolio and taking appropriate action, whether it be remodel, expand, and naturally also underperforming stores to close. The way that I'm looking at the store portfolio is really almost in a store-by-store basis, but also with a significant eye on certain markets. I think we all realized that during the last 18 months, there's been major impact in certain geographic locations in the United States. That has really exposed some of our store metrics as it relates to the number of stores in these markets, and also the ability to perform profitably. So therefore, the short answer is I'm looking at these types of markets. It looks like we have – we are over-stored or I don't believe that the markets will respond in any near – in the near future that we're going to take decisive action. In almost all of our major markets, we have kicked our closets in the majority of our stores. I believe we have somewhere around 94% of our stores have kicked out closets. So as these leases start to mature, I will be taking the necessary action. I believe that when you can take certain markets and eliminate a store or two, you don't lose all the business. There's a rule of thumb that you pick up about 25% of the lost volume in the store, which is in the closest proximity. Now that's one strategy. And then the other strategy is the outlet store strategy. The outlet store business, as you can well imagine it in these types of economic times, is really quite good. And they're still our best performing stores. So I'm looking at that strategy as an area where we could possibly eliminate a few of the mall-type stores and reposition the market where appropriate with an outlet store strategy. So they're what we have going. I haven't really put a definitive percentage on eliminating 10% of the stores. If this is all done on a lease-by-lease, year-by-year basis and as the leases come up for evaluation that's when the determination is made. Jeff Klinefelter – Piper Jaffray: Okay. One other thing, in terms of getting the 15% margin in two years – within the two-year period, what sort of an overall comp is required to get there for those two years?

Jeff, we're looking at that as roughly over the two-year period in the mid single digit range is how we're trying to position the idea of inventories and expenses. So certainly, as we see trends continue and as we see trends lift, we would begin to position our business against those trends. But we're trying to remain relatively conservative in our inventory position as well as our expenses. Jeff Klinefelter – Piper Jaffray: Okay. Great. Thank you. Jim O'Donnell: Okay, Jeff.

Our next question is from Christine Chen with Needham & Company, please proceed with your question. Christine Chen – Needham & Company: Thank you. I wanted to ask about aerie and about 77kids. Do you see any differences in performance at aerie depending on what types of mall it's in? And then also for 77kids when you go without, are you thinking about the different mall types, different geographic regions or will it be more concentrated? Thank you. Jim O'Donnell: Well, Christine, on the aerie question, clearly the stores perform – best – are in the better markets. I mean it's not a very astute comment. But right now we have enough of store base that we pretty much can – we know where we need to go. Actually, the markets that we're filling in some of the major markets the stores that perform the best. So many outlying markets seem to be a bit slower in generating top line sales. That doesn't mean that our (inaudible). We'll probably be filling in the major markets in more of the A and the strong B malls where appropriate as we roll the brand out in the future. I think all of you who listened to Joan and myself over the years as it relates to aerie, we never intended aerie to be a 1,000-store chain. We actually don't expect it to be anything more than maybe a 500-store chain. So we can be very selective by geographic area on where we place an aerie store. As it relates to kids, lessons learned in kids thus far are bad because of being an online business for a little over a year-and-a-half. We've gone through all the various seasons as it relates to products. And we have a pretty good handle on the types of products that the consumers – that they want, the price points they're willing to pay, and also the style of clothing that they prefer, both the casual and some being a little more of a dress-up for both little girls and little boys. As far as the real estate strategy goes, it'll follow a little bit along the line of aerie in that we'll try to get into some of the better malls. The first five are in better malls. They're in As and very strong B malls. And there'll be five of those. So we'll be able to monitor those very closely. We did have an experience. We opened up a pop-up store in one of the Pittsburg shopping centers. And it was very small store, 800 square feet, with a very limited assortment. And the reception from the consumer was – I don't want to be (inaudible) here, but it's really quite good. It was so good that we continued to keep the store open through the spring because it's one of the shopping centers we will be opening one of the free-standing stores. Lessons learned thus far, quietly optimistic. We still have a great deal to learn. We did not have instance online. We will have instance in the stand-alone. It's a business that if you can get it right, it's 40% of the business. And if you don't get it right, you know you're going to struggle. And we think we've got a very good team. And we have good experience in kids – in the kids merchandise, both in design as well as merchandising. And I believe we'll have strong operational execution. Christine Chen – Needham & Company: Thank you, and good luck for spring.

Thank you. Our next question is from Janet Kloppenberg with JJK Research. Please proceed with your question. Janet Kloppenberg – JJK Research: Good morning, everyone, and congratulations on the good progress being made.

Thank you, Janet. Janet Kloppenberg – JJK Research: You are welcome. I was wondering if you guys could address my struggle with your gross margin improvement. I guess I was looking for the first half of this year to be a bit more than I think it's going to be. We're seeing a lot of competitors leverage off of sourcing gains they made last year for the first and second quarters. And I'm wondering if you could discuss what your gross margin outlook looks like. I'm not sure that you gained as much on the sourcing side as others, perhaps you have. And then on a longer term question, I think your peak gross margin levels were around 48%. And I'm wondering, Jim, how – or Joan, how long you think it'll take to get back there? And Joan, shall we be looking for SG&A to be up in the mid single digit range in the first and second quarter or could it be higher than that? Thanks so much.

Okay. So I'll take the idea of the gross margin in the first half of the year, Janet. Janet Kloppenberg – JJK Research: Okay.

What's really critical for our profit improvement is, frankly, a combination of top lines as well as a turning factor in our inventory. So as we look at it from a merchandise margin perspective, we need to see our women's business continue to grow as – in mix in the overall assortment. And what I mean by that is we have positioned our denim. We're on a very strong trend. And we positioned our inventory behind that. And we need to grow our knit top category. We have about five points of opportunity in terms of sales mix, Janet, to get back to peak levels in terms of women's. Where that will come – our view is that will come in our top category, and we need to improve that top-to-bottom ratio. So that category is one of the highest margin categories that we have in our business and certainly is higher than denim. So that's a critical piece. That's a critical piece to the growth as it relates to sales, and margin opportunity, and mix. Jim wants to talk a bit about the sourcing opportunity. Janet Kloppenberg – JJK Research: Okay. Thank you very much. Jim O'Donnell: Let me just state very emphatically that as it relates to our sourcing and production teams and the fact the work that they have been doing over the past year, year-and-a-half, our cost per unit on average is down anywhere from 10% to 25%, and there are more of the 25% than the 10% reductions. Unfortunately, what we're incurring right now is an increase in transportation, the freight cost, that we were – had the advantage of last year that we will not have the advantage of this year as the carriers are now reemerging and increasing their overall costs, both in sea and in air. And also, as you have observed I'm sure that we're passing along some of the savings to the customers in our new pricing structure that gives much more credence to our value messaging that we've been speaking about for a good year-and-a-half to two years. Janet Kloppenberg – JJK Research: So Jim, should we not expect the five – you witnessed 550 basis points of merchandise margin improvement in the fourth quarter of '09 versus '08. Should we not expect that same level here in the first quarter of '10 versus the first quarter of '09?

Janet, you would not expect that. And we're looking to get in the neighborhood of a couple of hundred basis points and continue to improve that as we progress through the year. So as we look forward to second quarter, we would expect that to get better and so forth. So it's really about trying to turn this balance of our assortment inventories faster and get better sell-through on the women's knits category. Janet Kloppenberg – JJK Research: Great. And then just to the SG&A question please, Joan?

Yes, sure, the SG&A question, I would look for that in the first half, certainly higher in the first half that the second. And I would look at that in the range of a mid to high single digit, compared – depending on the variable selling expenses. Janet Kloppenberg – JJK Research: And have you posted the – we say the quarterlies without Martin+Osa on your Web site, Joan?

We have not. Janet Kloppenberg – JJK Research: Okay. When should we expect that?

We're working on that. And we can do that probably with the end of the first quarter. Janet Kloppenberg – JJK Research: Okay. Thanks for all the detail, and good luck.

You're welcome. James O'Donnell: Thank you.

Thank you. Our next question is from Adrianne Tennant of FBR Capital Markets. Please proceed with your question. Adrienne Tennant – FBR Capital Markets: Good morning, and let me add my congratulations on the product turn. Excuse me. I guess my question is still on the gross margin. As to the couple of hundred basis points in Q1, how much of that should we expect from March margin and how much from leverage? And if we get a comp that's better than a mid single digit comp, obviously, we should start to see some improvement in leverage piece of that, right?

Yes, we should. And what we're seeing in the first quarter, Adrienne, is that we can slightly leverage our ramp in the first quarter. So the majority that will come out of March margin – and in fact we're pleased that we're able to now look at the top line that's able to get us from leverage on the ramp line, which in 2009 that was difficult for us. So most of it from March margins, some slight leverage in ramp. Adrienne Tennant – FBR Capital Markets: Okay. And then on the AUC, how much of it are you giving back? And in the back half of the year, will you continue to see AUC reductions?

AUC? Adrienne Tennant – FBR Capital Markets: Oh, sorry. The average unit costing initiative that you've been working on. So how much of the cost reductions in unit cost are you giving back, passing back to the customers through lower prices? And then, the second part of that would be are you going to continue to see those cost reductions in the back half? Some people are saying that benefit is starting to flatten out in back half size.

What we're trying to do is as we move around our stores, we'll continue to see some benefit of that in the first half of the year. The second half of the year, we're working through right now in terms of our third quarter buys and positioning our thinking for fourth quarter. So we don't look back on that. But certainly in the first quarter, as we get those cost reductions, we're trying to balance this value component, which is very profitable for us, and also drive the higher unit price items with better sell-throughs. And that's where we'll get that margin opportunity increase that we expect to see here in first and second quarter. Adrienne Tennant – FBR Capital Markets: Okay. And then, really quickly, the Feb-March margin that was up slightly that included Martin+Osa. So how much was that impact? And then how much in sales should we take out as we're running the pro forma model for Martin+Osa in Q1?

Well, the way to think about Martin+Osa for Q1 is that last year, it lost $0.03. And so, hopefully that will help you in your modeling without getting into the details by month and by line item. Adrienne Tennant – FBR Capital Markets: Oh so, can you give any top line? How much was for the quarter or not?

No, not at this point. But if you're thinking it through the loss last year was $0.03. Adrienne Tennant – FBR Capital Markets: Okay. And then the Feb-March margin, please?

We haven't stripped out the Martin+Osa March margin for February. Adrienne Tennant – FBR Capital Markets: Okay. All right. Thank you so much, and good luck. Jim O'Donnell: Thanks.

Thank you. Our next question is from Brian Tunick with J.P. Morgan Chase. Please proceed with your question. Brian Tunick – J.P. Morgan Chase: Thanks. First one, I guess could you give us the store openings by concept that is in your current CapEx plans? And then I guess tied along with that, Jim, thoughts on the balance sheet? Obviously, now that we have some idea of how much it's going to cost to get out of M&O. Are you thinking of becoming more active, either increasing the dividend or doing anything on the share repurchase program? Jim O'Donnell: Okay. Go, Joan, you go ahead.

The real estate, Brian, as we look to 2010, 14 – this is all in the press release. It's 14 new AE stores, 20 AE store remodels, 15 to 25 AE stores to be closed, 20 new aerie stores, and 5 77kids. Brian Tunick – J.P. Morgan Chase: So net, what kind of square footage growth should we expect?

It would be relatively flat is the expectation for 2010 with the closing of Martin+Osa. Brian Tunick – J.P. Morgan Chase: Okay. Terrific. Thank you. And just Jim, on the balance sheet? Jim O'Donnell: Share repurchase. Joan will take share repurchase.

So with respect to the balance sheet, Brian, where we are is we have a nice cash position. We're comfortable with the cash position. It gives us the flexibility that we need. We approved a dividend in the first quarter here with our last Board meeting. And we'll look at dividends as we post up our first quarter results. Again, we have a $30 million share authorization. We expect that the only potential for a share repurchase maybe to offset solutions, which is only a $0.01 for 2010. But largely, we're very comfortable and feel just getting where we are in our recovery that it's best to remain conservative at this stage. Brian Tunick – J.P. Morgan Chase: All right. Thanks, and good luck.

: Jeff Black – Barclays Capital: Hey, Jim, so you mentioned international. And does that imply that we have some learnings from the 42nd Street Store Direct, and care to share any initial thoughts on what you meant by that? Thanks. Jim O'Donnell: Sure, Jeff. Well, on the international front, ironically starting next week, we opened our very first store outside of North America. We opened up in an upscale mall in Dubai. And the following week, we will open up in a high-profile center in Kuwait. Both of these are franchised operations with our franchisee at the Australia group. We are continuing to look at a number of opportunities in Hong Kong and in China. And the Australia group has the right number of Eastern Bloc countries, and naturally in the Middle East. And you'll be hearing more about plans that we're developing with the Australia group as well as looking at some other opportunities in the Asian market. Lessons learned from the Web, they're many. And we are looking at those markets naturally as potentials for expansion, either through licensees or joint ventures. But we're really walking before we run on this one. But that's why I mentioned in my remarks that you'll be hearing more about international as the year progresses because we are actively looking and now had the number of opportunities. But there are a number of issues that need to be addressed as it relates to international expansion. And there are a number of trademark issues. And there are a number of market components that we have to factor into our overall strategy. But we're quietly optimistic that we have a good plan. And I believe that our business partners that we've identified are quite formidable. And they all have experience in the various markets that we think has the potential to have some success, both in sales and profitability. Jeff Black – Barclays Capital: All right, very interesting. Thanks.

Thank you. Our next question is from Kimberly Greenberger with Citigroup. Please proceed with your question. Kimberly Greenberger – Citigroup: Great. Thank you. Good morning.

Good morning. Kimberly Greenberger – Citigroup: Joan, I was hoping you could help us understand the February merchandise margin and the up slightly, I think on a two-year basis. Cumulatively, the merchandise margin's down somewhere between 800 and 900 basis points. What does it take to move that margin up more? And is it – do you think that we'll see improvements starting here in the March-April timeframe or do we really need to look to second and/or third quarter before we'll see more meaningful improvements in that line?

I definitely think that February was about, really, clearance. And that's a penetration in our clearance versus last year. And you can see it in the AUR results for February. It's what really pressured the February margin to be up slightly. But as we move into March and April, which is a very important selling season with spring break for us and Easter shifts and so forth, we think that there's real opportunity for us there. And that's where we'll see the benefit of our assortments, our denim position, and importantly that knit top business that I was speaking of. And that's where we really expect the women's business to kick in and really deliver some higher penetration, which – with that result yield to higher margin. Kimberly Greenberger – Citigroup: Terrific. And the women's business already looks like it's seeing some momentum? Is the knit top category broadly also already showing momentum? And do you think we'll see that penetration increase in the near term, meaning in the next few months, or is that more of a summer opportunity? Jim O'Donnell: No. I think you're going to – I think as you monitor the assortments, Kimberly, I think you're going to see that the knit top improvement will be ongoing. It's not one of these (inaudible) or the old – next season. We're actually in – we're in full-blown assortment right now. And we intend to continue that way. You're going to see – I think we stated in some earlier remarks, continue to see new knits every four weeks minimally versus last year with six weeks. And so far, it's been very well received, especially in the women's. But we're also moving into men's. And I think the men's business is going to only get better each season. And we're starting to see signs of it already that the men's business has improved year-over-year. But the women's top business is really going to be one of the key drivers. And I know there's a great deal of concern around some of the gross margin flow through in February as well as what's being forecasted. But one of the strategic decisions that we made in February – January and February is that we were going to sell more of our own products, rather than at season end, sending it to a sell-off agent. So we're getting a higher retail than we would have if we headed into the sell-off arena. But that's behind us now. And so, with the flow and the improvement in the overall assortment, but primarily in knit and knit tops, you should see continued progression in the overall sell-through, and hopefully flow through to the gross margin line. Kimberly Greenberger – Citigroup: Great. And the stores look fantastic. So good luck to you for spring. Jim O'Donnell: Thank you, Kimberly.

Thank you.

Thank you. Our next question is from John Morris with BMO Capital Markets. Please proceed with your question. John Morris – BMO Capital Markets: Thanks. Congratulations on the progress as well.

Thanks, John. John Morris – BMO Capital Markets: So Joan, just a clarification here, maybe – unless I missed it, on Q4, the March margins were up 600 basis points. Excluding Martin+Osa, what would that have been excluding the Martin+Osa?

It included Martin+Osa. And for Q4 without Martin+Osa, the – I don't have that right at my fingertips, John. John Morris – BMO Capital Markets: Okay. But it's up 600 included Martin+Osa?

Correct. John Morris – BMO Capital Markets: Okay. Okay, good. That's helpful. If I can, I'll follow-up offline on that one.

That's right, appreciate it. John Morris – BMO Capital Markets: And then, Jim, I'm a little bit more – you're so good at talking about the merchandising performance in the category. So I want to get a little more color on – in particular, what you were happy with on Q4 holiday outside of denim, obviously, which we understand is performing really well. And where do you think the opportunity is for – looking ahead to holiday this year? Where could you have done a little bit better? Jim O'Donnell: Well, one of the categories that we are very pleased with, it's a category that we like to think we have some expertise in and that's in the fleece category. Our sweatshirt business was really quite good now. We kicked it off, if you recall, with a great promotions on the post-Thanksgiving weekend. We've continued to have the momentum right straight through the season. women's dresses performed very well. And category that you don't think much of, but it's really targeted as one of our growths, that channel is our jewelry, women's jewelry. It is been just a real positive and continues to be very positive in both top line, but also it carries very high margins and very quick sell-throughs. So we're very pleased with those categories. In men's, it was in knit tops with the waffle-top long sleeved crew was quite good. And woven shirts for men continues – was a very strong fourth quarter business. Through independent research they have within our categories, in NPD, it's between 14 and 19-year-old young men. We ranked number one in the woven shirt category. So that's been a real growth vehicle for us. And naturally as you said earlier, the denim business on both men's and women's continues to be quite good and really is the cornerstone of the brand. John Morris – BMO Capitals: And the opportunity for next year, where could you get some improvement beyond those successes? Jim O'Donnell: Sweaters, we could do a better job in sweaters in both men's and women's for fall and holiday. We have had success in sweaters in the past. The sweater category last year was not – it was okay. It wasn't a debacle, but it was just okay. Normally, in the fall and holiday season that is a major driver of sales in March margins and flow through to operating margin. So that's the big category. And actually, we'll continue to look at dresses or continue as an opportunity for women's. And in men's, it's also sweaters as well as continue to grow the woven shirt line and accessories for women. And we're going to get into a little bit of footwear. It won't be a big driver, but it will really round out the lifestyle brand at American Eagle. John Morris – BMO Capitals: Great. Thanks. Good luck for the spring. Jim O'Donnell: All right. Thanks.

Thank you. Our next question is from Jennifer Black with Jennifer Black & Associates. Please proceed with your question. Jennifer Black – Jennifer Black & Associates: Let me add my congratulations as well.

Thank you. Jennifer Black – Jennifer Black & Associates: You're welcome. I wanted to know what styles perform well in denim, skinny versus boot cut. And I wondered if there were any new silhouettes. It seems like there's a lot of buzz around cargoes for fall. I just wondered your thoughts on that. And then I have a follow-up question. Jim O'Donnell: Okay, Jennifer. Let's see if I can handle this for you. In the women's, the number one jeans were our artist jeans. But with a very close number two, which would be in the skinny. And we move the skinny, as you probably are aware of, into a number of fit systems, and that was an instant success. And we will continue to carry that forward. We have it now, and we'll continue to carry it forward into our back-to-school and into holiday. The new is the jegging, which is the – if you can believe it, the tighter jeans than the skinny. That's in both long lengths as well as in cropped. And so far the test on those styles has been quite good. Skinny will continue to be a very strong component in the denim line. We are bringing in some new washes for back-to-school. So you'll start to see an editing of some of the assortments now as we start to move into some of the newer style, which will land some time the ground in probably late May or in early June. And men's is pretty predictable, boot cut, low-rise boot cut. Although there is a trend for straight leg. And that's starting to emerge on both coasts. And we'll see how that plays out. We do have it in the line now. And we'll continue to monitor it and take the appropriate action when deemed appropriate. And that men's will also have some new washes, somewhere in the store now and you'll see some flow again in late May and early June.

Next question, Melissa?

Our next question is from Michelle Clark with Morgan Stanley. Please proceed with your question. Michelle Clark – Morgan Stanley: Yes, good morning. Jim, first question for you. Can you just tell us what lessons you've learned from Martin+Osa that you think will help you in the development of aerie and 77kids? And then second for Joan, you've mentioned in the first quarter that you're leveraging rent slightly. Can you just remind us what the leverage point is for rent for the full year, what comp you need, and then the sensitivity around that? Thank you. Jim O'Donnell: Sure. Well lessons learned, Michelle, on Martin+Osa are many. And we don't have enough time this morning to reiterate it all. But the short list is basically, have a strong leader and a creative team that clearly understand the mission at hand. The mission on hand is defined as what it is that – what's the DNA of that start-up operation and the absolutely laser-like in diligence that is executed along those lines. One of the things that if you've observed Martin+Osa, it had its moments. Unfortunately, there were very few positive moments. And it was ever-changing. And the consumer – and many of us continued to not clearly understand what was the compelling attractive component that was supposed to be Martin+Osa. Contrary to that, if you look at the aerie brand, you'll see tremendous consistency in the aerie brand. We want to stand for a very strong assortment in women's undies. We have a very strong assortment. And we'll continue to be strong. We knew that the bra component was going to be the centerpiece. And if we got the bra piece right that our chances of success would increase accordingly. We've got the bra business right. And we'll continue to improve upon that. Now, we have what I would call the complementary categories around aerie, and we've mentioned that in some of our remarks. 77kids, lessons learned, keep it lean and have a very creative team, good leadership. We are lean. We do have a good leader. And we have a very creative team, both in design and in merchandising. And we've been online for a year-and-a-half. And we have a pop-up store. So lessons learned is ,on Martin+Osa, you could go back in the time capsule, I would have put it online first and monitored accordingly, and then launch the retail operation – the store operation if in fact they met the hurdles, as the 77kids have not only met their hurdles, but have exceeded their hurdles that we've laid out for them while we had the business online, which we will continue. And that will be online.

And then the answer to the leverage for 2010, where we would leverage rent is at a low single digit comp. Michelle Clark – Morgan Stanley: Okay. Great. And Joan, do you have a sensitivity around that for a comp above the low single digit, what the upside would be?

No, not at this time, no. Let's start the year out, and we'll see how we go with the low single digit. And then the other – in response to John's question, just so everyone here has the same answer, is that the impact for Martin+Osa in Q4 2009 is about 250 basis points to margins.

Thank you. Our next question is with Todd Slater with Lazard Capital Markets. Please proceed with your question. Todd Slater – Lazard Capital Markets: Thanks very much, and congratulations. Jim O'Donnell: Thank you. Todd Slater – Lazard Capital Markets: I guess all the margin questions are kind of a beat them to death. But I want to maybe get back to Brian's question, and maybe, Jim, you could address this on a more strategic level. You're building quite a hoard of cash. We're estimating that could reach like $1 billion by the end of the year. And I'm confused as to why not deploy that much more aggressively since it does nothing per shareholder sitting on the balance sheet. It could be significantly accretive at these levels. I'm just curious what your strategic thinking as longer term of that? Jim O'Donnell: Well I think the question, Todd, and Brian has said earlier, it's a good question. Unfortunately, the answer may not be what you all want to hear. But we are looking at a number of different possibilities. We are looking at the dividend. And it is on the agenda for the next Board meeting, and we'll see what comes out of that. And also, on share repurchase, it's not really in vogue right now. And that we do have – we have authorization to buy, as Joan said, about $30 million shares, whatever. And when it's appropriate, and this is appropriate, we will take the action take the action accordingly. But right now, coming out of the bleak 18 months, we prefer to have a very strong cash position, which we do, and get our brands moving in the right direction. We made a – it's rather obvious you made a very serious decision on Martin+Osa. And we want to get that behind us. And then we'll be looking at number of different strategies naturally to improve the shareholder equity. But it's a step at a time. One of the things that lessons learned is let's stick to the things that we know and let's do them well, and improve our top line and our operating margins, and good things will happen. And then, you'll never know in the short term, what opportunities are going to make themselves available. And if there's an opportunity there that we think will enhance our overall portfolio and improve our profitability, we'll take advantage of it. So we're in a good place, and our plans are to stay in a good place. Todd Slater – Lazard Capital Markets: : Jim O'Donnell: I think I agree and I believe that it will be a topic of discussion at our next Board meeting. And we will layout some strategies for the Chairman and the Board, and see where it goes. But until that happens, Todd, it's very speculative. And rather not speculate, or anyone. I don't think it'd be fair. Todd Slater – Lazard Capital Markets: Okay, and good luck going forward. Jim O'Donnell: Thanks.

Melissa, we'll take one more question, please.

Okay, thank you. Our next question is from Dana Telsey, Telsey Advisory Group. Please proceed with your question. Dana Telsey – Telsey Advisory Group: Good morning, everyone.

Good morning, Dana. Dana Telsey – Telsey Advisory Group: Just one more thing just on margins, if you think about those 15% goal, what are the elements necessary to get you there? Is it more merchandised margin, AUR? How do you think of SG&A? How do you think of the equation of the business given the elimination of Martin+Osa and the 77kids? And could that be a higher margin business over time? Thank you.

With respect to the margin, Dana, the way that we are working and working to our operating plan is to look at 2010, focus on the American Eagle brand, and continue that momentum that we have going. I spoke about women's and the contribution of women's, continue with men's progressing, that will slow March margin increases and flow margin dollars to the bottom line. That's your number one imperative. When we focus on the aerie brands and 77kids, aerie is a profitable brand. And as Jim mentioned in his remarks, our target for aerie is 25% improvement and productivity for 2010. That is a significant profit contribution for us for 2010. So that new concept is important to our growth. And then kids, which has a very nominal impact in 2010, we will look for kids to be a contributor as we move into the 2011. So American Eagle continues to improve penetration of women's and continue growth in men's, and get the higher margin categories to flow through. aerie needs to improve its productivity, 25%. And as we look for our expense initiative, we continue to really drive expense control and continue to focus on our spending. Our costs currently are at, at the end of the year, $119 per square foot. That's the lowest level since 2005. That said, we can continue to improve efficiency there. So most of these improvements will come at a top line and merchandise margin flow through. And as we continue to grow top line, you'll gross margin improved because we will begin to leverage rent. And I said in 2010, it's a low single digit comp point to leverage rent. So that's the game plan. Dana Telsey – Telsey Advisory Group: Thank you.

You're welcome. Jim O'Donnell: Thanks.

All right everybody. That concludes our fourth quarter conference call. Our next announcement will be the March sales report, which will be on Thursday, April 8. 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.