Sabrina Simmons, Senior Vice President, Treasury and Investor Relations Byron Pollitt, Chief Financial Officer Paul Pressler, Chief Executive Officer Jenny Ming, President, Old Navy Cynthia Harriss, President, Gap Brand

Donald Trott, Jefferies & Company. Dana Telsey, Telsey Advisory Group Dorothy Lakner, CIBC World Markets. Gabrielle Kivitz, Deutsche Bank. Barbara Wyckoff, Buckingham Research John Morris, Harris Nesbitt. Kimberly Greenberger, Citigroup. Mark Friedman, Merrill Lynch Brian Tunick, J.P. Morgan Stacy Pak, Prudential. Lauren Levitan, Cowen & Company. Janet Kloppenburg, JJK Research. Margaret Mager, Goldman Sachs.

Good afternoon ladies and gentlemen, and welcome to Gap Inc.'s Fourth Quarter Conference Call. At this time all participants are in a listen-only mode. If anyone should require assistance during the call, please press "*" followed by "0" on your touchtone phone. The conference call and webcast are being simultaneously recorded on behalf of Gap Inc., and consist of copyrighted material. They may not be recorded, reproduced, re-transmitted, rebroadcast or downloaded without Gap Inc.’s expressed written permission. Your participation represents your consents to these terms and conditions, which are governed under California law. Your participation on the call also constitutes your consent to having any comments or statements you make, appear on any transcript or broadcast of this call. If you have any questions regarding this policy, please contact Gap Inc. Investor Relations at 415-427-2175. I would now like to introduce your host Sabrina Simons, Senior Vice President, Treasury and Investor Relations. Please go ahead Ma'am. Sabrina Simmons, Senior Vice President, Treasury and Investor Relations: Good afternoon everyone. I’d like to welcome you to Gap Inc.’s fourth quarter 2005 earnings conference call. For those of you participating in the webcast please turn to slide 2. I’d like to remind you that the information made available on this webcast and conference call contains forward-looking statements including but not limited to forecast relating to earnings per share, comparable store sales, incremental stock option expense, free cash flow, share repurchases, dividend amounts and timing, operating margin, inventory per square foot, gross interest expense, depreciation and amortization, capital expenditure, effective tax rate, store openings and closings, real estate square footage as well as other statements that express our expectations, anticipations, believes, estimates, intentions, plans and forecast. Because, these forward-looking statements involve risks and uncertainties, there are important factors that could cause the company’s actual results to differ materially from those in the forward-looking statements. Information regarding factors that could cause results to differ can be found in our annual report on Form 10-K for the fiscal year ended January 29th, 2005. Investors should consult our quarterly report on Form 10-Q for the quarter-ended October 29th 2005 and today’s press release. Future economic and industry trends that could potentially impact net sales and profitability are difficult to predict. These forward-looking statements are based on information as of February 23rd, 2006 and we assume no obligation to publicly update or revise our forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized. This presentation includes a non-Generally Accepted Accounting Principle measure, free cash flow, which under SEC Reg-G we are required to reconcile with GAAP. A reconciliation of this measure to GAAP financial measures is included in our earnings press release, which is available on gapinc.com. On today’s call, Byron Pollitt, our CFO will cover our financial performance and outlook for 2006. Following Byron, Paul Pressler, our CEO will summarize 2005, performance and address 2006 priorities. After Paul, Jenny Ming with discuss Old Navy followed by Cynthia Harriss who will discuss Gap Brand. After Cynthia, Paul will make closing remarks and then we will open the call up to questions. We expect the call to last about an hour. Now I’d like to turn the call over to Byron. Byron Pollitt, Chief Financial Officer: Thank you Sabrina. Good afternoon. I’d like to begin the call today by discussing business performance in 2005, and then give you our outlook for 2006. We have a few highlights from 2005. We delivered full year EPS of $1.24 and operating margin of 10.9%, both of which are at the upper end of our pervious guidance. We generated $951 million in free cash flow this year, above our prior year guidance due in part to aggressive management of inventory. As a result, we ended the year with $3 billion in cash and short-terms investments. Our strong financial position has allowed us to return excess cash to our shareholders. We doubled our dividend to $0.18 in 2005, and we repurchased 98.5 million shares at a cost of $2 billion. Since we began our share repurchase program in 2004, we have spent $3 billion repurchasing 146 million shares. Now please turn to slide 4 for a review of earnings performance. Fourth quarter earnings were down 11% to $337 million or $0.39 per share. Please note the fourth quarter effective tax rate was 36.4%, 120 basis points below the prior year rate. This reduction contributed $0.01 of EPS for the quarter and the year. And was primarily due to a non-recurring tax benefit. The full year effective tax rate including the non-recurring benefit was 37.9%. Full year earnings were $1.1 billion or $1.24 per share versus $1.21 per share last year. Fourth quarter weighted average diluted shares were 870 million and full year weighted average diluted shares were 902 million. Please turn to slide 5, sales performances. Fourth quarter total sales were $4.8 billion down 2% versus last year. Despite the overall decrease in sales we are pleased that our new e-commerce platform successfully handled the highest volume ever and online sales grew 20% during the fourth quarter. Total Company comp sales were down 6% in the quarter versus down 3% last year. And while full year comp sales decreased 5%, total sales were down 2% to $16 billion. This 3-percentage point spread was driven primarily by new store openings during the year. Please refer to our earnings press release for total sales in comps by division. Turning to slide 6, gross profit. Fourth quarter gross profit decreased 9% to $1.6 billion. Gross margin was 34%, down 280 basis points compared to last year. 150 basis points of this decline are from lower merchandise margins. And the remaining 130 are from the de-leveraging of rent, occupancy and depreciation. Of the 130, one hundred basis points are the results of a change in the way we record payments made in France to secure the right to leased stores. Following the discussions with the SEC, we determined that these payments most of which was made in the late 1990s, should be more appropriately amortized over the term of the leases versus our historical practice of capitalizing them as intangible assets with indefinite life. This change reduced fiscal year EPS by $0.03 per share. Full year gross profits was $5.9 billion, gross margin was 36.6%, down 260 basis points from last year, with 220 basis points from lower merchandise margins, and 40 basis points from the de-leveraging of rent, occupancy and depreciation. Of this 40, 30 basis points relate to the amortization of French release rights. Please turn to slide 7, for operating expenses. Fourth quarter operating expenses were down 5% to $1.1 billion. Full year operating expenses were $4.1 billion, down 6% or about $275 million below last year. To put this reduction in perspective, please keep in mind that 2004 expenses included $105 million related to early retirement of debt. There were no such expenses incurred in 2005. And 2005 expenses were reduced by: First, the reversal of a $58 million sub-lease loss reserve related to our building in the Mission Bay area of San Francisco. Second, a $42 million re-class of certain sourcing expenses to cost of goods sold. Third, lower marketing expenses primarily driven by our discussion not to run a holiday TV campaign, a Gap brand. And four, lower than normal bonus expense related to 2005 performance. Turning to inventory, on slide 8. We ended fourth quarter with $1.7 billion in inventory, down 7%. Inventory per square foot was $43, down 11%. Please turn to slide 9, for capital expenditures and store count. Full year capital expenditures: $600 million. Full year, we opened 198 new stores and closed 139, ending the year with 3,053 stores. Square footage increased 3% this year inline with our guidance. Please refer to our press release for end of year store count and square footage by division. Regarding cash flow, on slide 10. Full year free cash flow, defined as cash from operations less capital expenditures was an inflow at $951 million, down $227 million versus last year, driven primarily by higher capital spending. Please refer to our press release for a Reg-G reconciliation of free cash flow. As noted on the January sales call, our $500 million stock repurchase program is complete. We repurchased a total of 18 million shares in the fourth quarter at an average price of $17.62 including commissions. Also in 2005, we doubled our dividend to $0.18. We ended fourth quarter with $3 billion in cash and short-terms investments, of which only $55 million is restricted. Now lets review 2006 outlook, on slide 11. Given the uncertainty regarding the timing of our turnaround, month-to-date February traffic that is down 13%, and management’s expectation that total comp store sales will remain negative in the first half and turn modestly positive in the second half, we are adopting a cautious outlook for 2006 and guiding to a modest $1.23 to a $1.27 per share including option expensing. When assessing our 2006 EPS guidance, please keep in mind that achieving the same $1.24 in 2006 that we recorded in 2005, calls for delivering six pennies of EPS to compensate for the following factors benefiting 2005. First, 2005 did not include stock option expensing under SFAS 123R. Our outlook for 2006 EPS includes this impact, which we estimate will be about $45 million pretax or $0.03. Second, we call that fiscal 2005 includes a $0.03 net benefit from a combination of four previously disclosed factors as follows: First, a $0.04 benefit related to our decision to occupy Mission Day. Second, a $0.01 benefit for a lease accounting true-up. Third, a $0.01 benefit from a lower effective tax rate driven primarily by a non-recurring tax benefit realized in Q4. And finally fourth, these benefits were partially offset by $0.03 of catch-up amortization related to lease rights in France. Moving on to the remaining 2006 guiding metrics. We expect operating margin for 2006, including option expensing to be 10% to 10.5%. Full year gross interest expense is expected to about $40 million. We expect inventory per square foot at the end of both the first and second quarters to the down in the low single digits compared to last year. Regarding store activity for fiscal 2006, we expect to open a 175 new store and to close a 135. With openings weighted to Old Navy and closures weighted to GAP. Please refer to our fourth quarter press release for a summary of store activity and gapinc.com for 2006 store guidance by division. Full year net square footage is expected to be up between 1% and 2%. Full year capital expenditures are expected to be $675 million, and here is the breakdown: Stores $470 million, with $270 million for new stores, and $200 million for existing stores. IT about a $130 million, headquarters and distribution centers about $75 million. We expect to generate at least $900 million in free cash flow. We expect full year Depreciation and Amortization to be about $535 million. And for the full year we expect the effective tax rate will be about 39%, an increase over 2005, due to the absence a nonrecurring benefit in 2005, and a higher worldwide effective tax rate in the fiscal year 2006, primarily due to the continue growth of our business in Japan where tax rates are higher than in the US. Reflecting management's confidence in the Company’s long-term prospects and its ability to generate and sustain strong cash flow, we intend to increase our annual dividend per share by 78%, from $0.18 per share in 2005 to $0.32 per share in 2006. We expect the timing of our dividend payouts to occur in late April, July, October and January. And regarding share repurchases, today we announced the authorization of a new $500 million repurchase program. We expect to repurchase $250 million of this authorization in the first half of 2006. The amount of this authorization in part reflects our cautious outlook regarding the pacing of our turnaround. Thank you, now I’ll turn it over to Paul. Paul Pressler, Chief Executive Officer: Thank you, Byron. None of us were satisfied with our overall 2005 business results. This pass year we pursued new approaches to gain market share, but did not deliver on our expectations. We know we can do better, the strength of our brands, our balance sheet and our talent provide a solid foundation for success. Today each of our brand Presidents is clear about what needs to be done and they are acting with a tremendous sense of urgency to win back our customers. During the year, when we had disappointing top line results, we used our strong cash flow to double our dividend and complete a $2 billion share repurchase program. We also delivered on our growth initiatives, successfully launching Forth & Towne, introducing Banana Republic in Japan, developing a franchise capability and signing our first agreement. And building new online systems resulting in what we believe are the best websites in apparel. With that said, we know that our long-term success requires growing our top-line. As we discussed on our third quarter earnings call, we are 100% focused on improving the product in each of our brands. And although we saw improvements in our style aesthetic and assortments for holiday, it is not enough to reverse our declining traffic trends. Our traffic insight suggests we have not lost our customers. They are still visiting our stores, but because they have been disappointed with our product offerings, they are shopping us less frequently than before. We believe that by making product improvements each season, our traffic will follow. As we've said, it will take more time to see our efforts reflected in our results. We believe that traffic lags product improvements by one or two quarters, so we expect that the first half of 2006 will be challenging and that will begin gaining traction in the second half. Each team has built and is executing their turnaround plans. Including clear product strategies supported by effective marketing and compelling store experiences. In many cases, we are changing the way we worked to drive execution and ensure accountability. Today, Jenny and Cynthia will discuss progress at Old Navy and Gap. First I’ll share a high level perspective on Banana Republic. We will continue to execute to Banana Republic affordable luxury positioning in a way that is approachable for our core customers. Our product assortments will emphasis versatile essentials and we are focused and more clearly communicating this to our customers. This spring, we are getting behind key big ideas. Classic white shirts and Chinos with broader deeper investments supported by compelling windows, visual merchandizing and marketing. Our print advertising featuring black and white photography reflects this focus on key items and everyday style. To drive traffic, we are focusing our efforts on our most important market, New York. Beginning this week and next week in Manhattan, Banana Republic will dominate key billboards, bus stops and subway stations and we have invested additional payroll in stores to ensure a great shopping experience. Following this test, we will determine whether we will expand this approach to other markets. In all markets we are using the launch of our handbag collection to give customers a new reason to comeback to Banana Republic this spring. This is supported by magazine and newspaper advertising, windows, and focus store displays. We are pleased that initial customer response to handbags has exceeded our expectations. And now I will turn the call over to Jenny. Jenny Ming, President, Old Navy: Thank you, Paul. At Old Navy in 2005, we focused primarily on competing on price. And as the result our product became less differentiated in the market. While that remains an important part of the brand proposition, we know what is essential in setting us apart is offering special, trendy product in a unique store environment. In line with this positioning, the team has made several changes to ensure that we are getting trend like products into stores faster. Now that the Old Navy designers are based in San Francisco, they are working more dynamically with the merchandizing and production teams on a daily basis. The teams are traveling to outsourcing offices and factories to make decisions more quickly and gain feasibility to new innovations. We created fabric R&D team that found ways to replicate more expensive denim technique on our base cloths, and they taught our venders how to execute those techniques within our volume and cost requirements. And you can see this in our special edition denim. Old Navy now has the ability to develop portions of our most fashionable product in three months. This shorter lead time allows us to lead more open to buy opportunities, particularly in women to more quickly react to customers response and market trends. With the specialty product filter in place, our merchants feel more confident investing boldly in core trends to reflect a focus point of view in stores. So for example, in March, we are featuring stripes for the whole family, and then in April we have a pure and natural theme including our trend items like embellished tanks, skirts, while our cargo caprice and Estragon. Our spring and summer marketing trend support two trend like fashion themes, TV advertising will begin running next Thursday, beginning with the focus on stripes, then naturals. We've also redesigned our circulars to better highlight products with more elevated photography in cleaner layouts. In addition, we plan to add a bus generating PR campaign for summer. In football, we are increasing our marketing investments, television and magazine advertising. And finally, to better showcase our specialty products in April, we are rolling out improved in store signage, and in July we are upgrading our front of store fixtures. As we told you last quarter, we are continuing to allocate payable dollars to ensure that stores are neat, clean and organized. With our specialty focus strategic filter in place, we feel good about our plan to improve our product, marketing and store execution, and we are confident that we will deliver improvement each season. So, now I like to turn the call over to Cynthia. Cynthia Harriss, President, Gap Brand: Thank you, Jenny. Good afternoon, on today's call I would like share with you the progress we made in 2005, laying the foundation for our turnaround. And then take you through our key strategies for 2006. As a reminder, I've been the president of the Gap Brands for nearly 10 months. I've learned a great deal about the challenges the business has faced in the past and the opportunities lie ahead. During 2005, we focused on three priorities that I believe are critical to renewing Gap brand, and successfully returning our business to health and greatness. First and far most, we focused on reestablishing the essence of our brand by building on our heritage and the strong appeal that has made Gap a cultural icon. Then, a comprehensive turnaround plan was developed, it includes aggressive steps to improve our product, store environment and marketing. Equally important was attracting key leaders with expertise in critical areas to join our team. And our designers and merchant for adult accessories, kids baby and body, each bringing broad retail experience and a strong track record of leadership with high growth companies, and successful business turnaround. While we are confident that these are the right strategies to deliver value, we are realistic that these changes take time. Our expectation is our product assortments will get better with each season and more reflective of our brand essence. Now I would like to spend some time on what we are pursuing in 2006. First it all starts with product, the Gap brand is casual and confident, we are at our best when we interpret current trends, through our Gap filter and create exquisite updated classics that are wardrobe foundation. By being clear about who we are we will deliver beautiful products to our customers with relentless attention to detail. Our merchandising strategy to deliver this product starts with the assortment. Our product assortment will be routed in key categories and we will reestablish Gap’s authority as “The place” for T-shirts, hoodies, great clean bottoms and most importantly denim. And we were making changes in how we align our resources against these categories. With smaller more focused key impedance in each of these areas, we are creating clear accountability for ensuring that our product has trend wise design, quality fabrication and trends as well as consistent and perfect fit. Designers and merchants along with production will travel periodically to key factories to personally oversee final specifications. This will ensure the design intent is reflected in great product delivered to our customers. Elevating our fabric and yarn selection is also important, specifically you will see cotton cashmere and sweaters, modal blends and knits, and a wealth of treatments in bottoms including a broader range of fashion marshes in our denim. We are also branding our product with innovative graphics and labeling. These important design elements are distinguishing features for our products. To that end we are developing a team dedicated to graphics. Of course, great fit is another critical element, we must get the fit right across these assortments and deliver consistently. We will build product acceptance and loyalty with our customers through casual and confident Gap design, quality and great fit, this in turn will drive greater regular price selling. Next, we are focused on creating the right store experience to drive traffic and to delight each customers that walks through our doors. Our stores will communicate a clear point of view that it’s fresh, relevant and represent the Gap aesthetic. This starts with windows and in store displays. We are reintroducing visual experts in stores to improve the dramatic impacting clarity of our windows, and the bill displays to bring our products to life. There will be clear destinations for each key category. Customers will see signage and merchandising that makes it easy for them to find what’s new. Our tables will be well merchandise with key items and mannequins will show great ways to style and wear our product. And we are focusing on delivering great service to each and every customer by developing sales teams that are knowledgeable about our products, and passionate about providing extraordinary service. Our customers are responding well to the newly remodeled stores in Denver, Hartford, San Diego and New York. We are working to bring the best ideas of these stores to our fleet. But a comprehensive rollout of the new format will take time. In 2006 we plan to remodel an additional 20 stores, and our team will refresh 200 Top adult stores with elements that most directly impact customers, such as visual presentation, new mannequins, upgraded hangers and painted walls. Finally, lets turn to marketing. We are focused on creating inventive marketing that’s fresh every month, and clearly shows what’s new at GAP. Introducing versatile key items and building intriguing frequency, we will give customers the reason to come to our stores each month. Integrated marketing campaigns will create for instance prior Gap’s most loyal customers describe the word that “Gap is back”. Based on specific campaign and our unique customers segments, different marketing vehicles will be used, and we will continually evaluate our mix including direct mail, circulars, prints, outdoor, radio and TV to ensure we are using the media that makes the more sense. In closing, my team and I are very excited about the changes in the strategy we have put in place. Please bear in mind that change of this nature takes time but I am confident that we have built the right foundation to win and that we are in the right track with our product, store experience and marketing. Thank you. Paul S. Pressler, Chief Executive Officer: In closing, despite recent challenges our ongoing ability to generate strong cash flow has given us the confidence to significantly increase our dividend and continue our share repurchase program. I am looking forward we remain committed to delivering shareholder value through cash distributions and operating performance. We will continue to pursue our growth strategies. First, building and growing our lifestyle brands to real-estate expansion and brand extensions. Second, expanding our brands internationally, exploring China, and franchising in smaller more fragmented markets. Third, building our world-class online business and finally creating new brands. We have recognized that our success depends on creating great product, and we are aggressively taking actions to improve that is our No.1 focus. We will support this with flawless store execution and effective marketing. Gap, Banana Republic and Old Navy are strong brands with many loyal customers who want us to get it right. I am confident that by maintaining our renewed focus on creativity and product, we will win back more of these customers each season, and when we do we will gain tremendous leverage from the solid infrastructure we have built. Sabrina Simmons, Senior Vice President, Treasury and Investor Relations: That concludes our prepared remarks, we will now open the call up to questions and we greatly appreciate callers limiting their question to one each.

Q - Margaret Mager: Hi, couple of questions you said one. Alright, the operating margins go 10% to 10.5% down from the 10.9% that you achieved this year. What is that the key reason why you see it going down next year? And I am also just curious in your target for free cash flow for the year what is your view of inventory will it be a force or a use of cash? Thanks. A - Paul Pressler: So, Byron I’ll answer that. With regards to the drop in operating margins to 10 to 10.5 the short answer Margaret is that it is clearly difficult to have a meaningful improvement in operating margin given the pacing of our turnaround. And given the combination of negative comps in the first half with modest positive comps in the back half. Operating margin holding at 10.9 and improving on 10.9 really must follow from great product that brings back to traffic and drives higher regular price selling and we are all being very realistic that as our product improves you should expect a lag for traffic to follow. So the 10 to 10.5 is reflective of our cautious outlook for '06 and the pacing of our turnaround. With regards to inventory, as you know we guide inventory each quarter so we have guided out over the first two quarters of this coming fiscal year and we will update that quarterly.

Your next question comes from Janet Kloppenburg from JJK Research. Q - Janet Kloppenburg: Good afternoon everyone. I was wondering if Jenny could talk a little bit about what’s going on at Old Navy in terms of the competitive profile, maybe if there has been some focused groups with the target customer, find out where they are diverting their shopping patterns and perhaps if there are categories of business Jenny that are performing well that you could capitalize on downsizing some other businesses. And lastly I was wondering why you would focus on expanding Old Navy at this time when it seems like the product assortments are not yet what you’d like them to be? Thank you. A - Jenny Ming: Hey, regarding our competitive set I think our competitive set is pretty fierce right now obviously but talking to our customer where we really feel, its really our product they really want to have specialty product from us, and they also want our value commodity opening price points too, so it’s really having that balance that we are looking for and that’s what we are focusing. And now that our specialty filter is back on our core product, it will help us balance our product into the right place. As regarding to category a stronger category is always the same category that we are known for which is knit. We have a very strong market share, and then of course our bottom cargo, fills are very strong right now and continues to do so. A - Byron Pollitt: With regards to why we are continuing to expand Old Navy, clearly it’s been a challenging year but I’ll say that the business model for Old Navy is rock solid even with the challenging year just experienced and so we are very supportive and continuing to expand units in Old Navy and to take market share through real estate expansion without hesitation.

Your next question comes from Lauren Levitan with Cowen & Company. Q - Lauren Levitan: Thanks good afternoon. I am wondering if you could update us on your lead optimization and rationalization plans and results of those strategies. You got another great big year for closure for the Gap divisions plans and I am just curious if you could give us a sense of how much more opportunity you have to rationalize that change and maybe elaborate on is there something associated with this brand positioning of the Gap division that creates a greater opportunity to close stores like are there certain type of markets or venues that you are exiting to, and hoping to recapture those sales elsewhere? Thanks very much. A - Byron Pollitt: So Lauren, as you may recall, we have indicated that 2001 was the last major year of Gap store expansion and that with average leases with our lease that average is five years in duration before options, we fully anticipated that we would have an above normal level of closures through fiscal year 2006. And so the closing levels that we just outlined are fully reflective of that earlier expressed point of view, and we will continue to guide one year out with regards to closure. So with the 135 closures we’ve outlined for the coming year. That’s the extent of our guidance at this point and with regards to the benefits associated with this. The leveraging that we have delivered on the rod line: rent, occupancy and deprecation, has been consistent and largely due to the closing of those Gap stores and replacing them now with Old Navy stores which generate more leverage relative to the fleets on average.

Your next question comes from Stacy Pak with Prudential. Q - Stacy Pak: Hi thanks. I was hoping that Jenny and Cynthia could grade the spring deliveries at their respective brands. And also I understand the comments you made on traffic lagging product, but whether you guys believe, you guys being Jenny and Cynthia that conversion should improve as the fashions improves or whether we shouldn’t see an improvement there? A – Cynthia: Hi Stacy this is Cynthia. Well, it’s hard to grade your children here with it. What I would say is certainly if we say the spring product its not reflective of what you’ll continue to see with the progress that we are making with the Gap brand that we’ve been talking about. I’d say first and foremost as I mentioned in my speech here is that we are going to be very focused against key categories so that you will see a stronger point of view in the storage than what you see today. And whereas that we are getting some good traction on specific items within the categories, I don’t think that we see the dominance that you’ll see in the future. So those four key categories of T-Shirt, Hoodies, Casual Bottoms and Denim, you should be able to really walk in the store and know that’s what we really stand for. And I think that’s where that we can improve upon product. And I think we certainly know that with the additional product acceptance that’s going to make a change in all of the consumers’ behavior with improved conversion and all of the rest. A - Jenny Ming: Okay, we just dropped spring three in the store last week, so obviously it’s a little early and we do have marketing guys behind it starting with next Thursday the TV is all be going to about stripes for the whole family, and then followed by that is on Sunday we will drop a new circular, which is much more elevated than previously, better photography, a lot more updated, lot cleaner so we are inviting our customers back in to our store. But you know when you are disappointing, we disappoint our customers for several seasons now, so it takes time to win them back into our store. Same thing, I think, as Cynthia said its hard to obey your children especially as an ex-merchant I always really lot our products and as you and I talk about is really having the confident to step in and buy the big items. I don’t understand I think you will see incremental improvement month by month, season by season and that’s what we are focusing on. Q - Stacy Pak: And what about the conversion Jenny? A - Jenny Ming: We always had pretty good conversions but I think what we are really focusing now is traffic, that’s the piece that I think is lagging behind. We expect when product is better we will see traffic hopefully improving. Q - Stacy Pak: Thank you.

Your next question comes from Brian Tunick with J.P. Morgan Q - Brian Tunick: Thanks. I guess first to Cynthia, just sounds like your conversation with graphics and hoodies and track jackets and Denim, just sounds that business is going after more of the teen customer, don’t you think there is already enough capacity out there for that customer or is there something I am missing maybe you are just trying to focus more on basics? And then for Byron or Paul maybe just some comments about which division got hurt more in 2005 as far as operating metric, I know you don’t give operating margins by division but just which division might have more opportunity for 2006? Thanks very much. A - Cynthia Harriss: Hi Brian, this is Cynthia. So first of all the foundational categories that I am talking about, those are really a part of Gap’s heritage, and that’s what we stood for over the years, we just not have the strength and authority maybe in the last several seasons. In addition to that, those are the categories that where we have the greatest strength already and where we are getting the most traction, that’s where our customer counts on. We are a brand that can support a breadth of customers with the right style aesthetic and I think the difference between some of the more teen markets is that's a wholesome all American brand and we can do it in a way that’s going to have the right appeal with that Gap aesthetic. So we are very encouraged by what all of this can be for us. A - Byron Pollitt: So Brian with regards to which division or divisions have the most opportunity looking ahead, what I would say is that when we look back over 2005 performance, the shortfalls in traffic, and the related deterioration in margin was across all divisions, so it’s across the board. And when you asked the question where is the greatest opportunity going forward? We would reply it’s basically related to the size of the division since all opportunity for improvement, and so the answer there is all maybe in Gap. Q - Brian Tunick: Alright, thanks very much.

Your next question comes from Kimberly Greenberger with Citigroup. Q - Kimberly Greenberger: Great thank you. Good afternoon. I was hoping that Jenny and Cynthia could speak to seeds in market. And Jenny, I know you had some success last year with a few key items particularly in spring and summer. In 2006 what percentage of your inventory can you keep open to buy till 90 days out so that you can I guess improve the accuracy of the buy, and what efforts are you making internally to share some of the best practices in terms of future markets with the Gap Brand and Old Navy? Thanks. A - Jenny Ming: Now that we have our New York team in San Francisco working alongside with our merchandizing and production team. It really has really helped and improve us in each market, and we are increasing or looking to buy leaving more open, we started with about 10% last year, and it’s growing. As we go through the year, we feel we are doing a better and better job. But mainly it’s really in women because you know that’s where the most opportunity is to get the right fashion, but I think we can’t forget that our entire assortment is not just about fashion. Our basics are pretty much monthly replenishment, and then we also have our value opening price point commodities like a 2 by 2 with tank or our perfect-T, that is about 4 to 6 months, which we by placing us 4 to 6 months we get the best quality and the best price that we can get from our vendors. So when you look at the whole pipeline you got monthly replenishment and you get the feature market plus if you have a little longer lead time from 46 months. So we see it is that area that we could grow into even more so as we move forward. A - Cynthia Harriss: So this is Cynthia. I would say for Gap brand, the word that I’ve used is for us to push or we acknowledge that we are big and we need to be nimble, and that’s our job to get nimble and to be faster. And the word that I used is focus and that’s what we been doing is to get our teams focused so that we can be more nimble and laying that as foundation, specifically as you know that we have hired key leaders for the kids, baby maternity with Pam Wallack, and Tom Wyatt will be joining our team in two weeks to be the President of Body. That gives us focused, strong, decisive leadership to really drive those businesses, it also allows me to spend my time more focused directly with our team. In addition to that, we have divided our teams and have been very focused against the key categories that I mentioned so, making a clear and clear accountabilities between design, merchandizing, planning, and production so that we get ourselves set up to be able to do that, and that we are well underway of making changes and how we develop and bring product to market so that we will be faster, more effective and have stronger execution overall against the product.

Your next question come from Mark Friedman with Merrill Lynch Q - Mark Friedman: Thank you, good afternoon everybody. I was wondering if you could talk about the new Gap prototype, and how did that perform, and maybe you can give us the various markets or anything about what you learned about it so far? And what was the latest outlook on expansions and updates to that format in 2006? Thanks. A - Cynthia Harriss: Hello, this is Cynthia. As you know last year we remodeled 60 of our stores, and this year we have on the dockets remodeled 20 of our stores, and what we have learned so far certainly our customers are, and we rate them very positively. And what we can see is that if we say those stores compared to control markets that they had stronger increases in those markets on comp sales driven predominately their the traffic. So, generally overall, we are very favorable about those and we are enthused about what we will learn from this, just we are just anniversarying those stores so what we learned this year will give us a level of confidence about how we'll expand in '07 and beyond. Meantime as I mentioned in my earlier remarks is that, we are going to take the best of those elements to our top 200 stores, these are our most productive stores, and it’s the lion share of where we'll get some real traction there, also in our key most visible market, and when I say refresh, is less than a remodel and more than a little paint with this, that you'll see a visible difference in the store and we have called out the best elements from what we learned in the store remodel and be able to do that physically with the stores but it’s more than even the physical plan but we've also learnt with those is the element with the service, the windows, all of the other elements that we have put with the stores, so that kind of the store answer is we are very favorable about it, continue with the remodels but we want to jump start it, because it will take us a period of time to get that in the fleet and you will see these top 200 stores and we are targeting by Q3 that you should see a visible difference in those markets.

Your next question comes from John Morris with Harris Nesbitt. Q - John Morris: Thanks, good afternoon everyone. I guess, Paul, maybe this is for you. I know, you have sort of answered this a couple of different ways, but let me try and ask it this way. I think, given sitting back and looking sort of from the 30,000 sq. ft perspective, given the new buyback as a very significant increase in the dividend, you are clearly sending a signal of confidence for the market, which is great. But that coupled with the cautious outlook, the low traffic we are seeing in Q1, what is it that, you see out there that that gives you the confidence maybe what is that you see that we don’t see that gives the confidence to do that. I know you talked about a lag in the product or at least in the traffic catching with the product, but what may be some examples and some specifics about what you might see that we don’t? Thanks A - Paul Pressler: I think, well I guess, the 30,000 level or may be 100,000 level, we have amazing brands we know, we know we have tremendous loyalty through our customers, and as I said on my talk is that, we do believe that it is more of a frequency issue than it is a loss of customer. We have put in place a lot of the foundation, both from our operating disciplines standpoint and more importantly from our growth opportunities for the future, which I am very confident in our ability to long-term execute. We know that right now we have got to get our product right, we have refocused our teams, and we have heard Jenny and Cynthia begin to talk about that, that will take a little bit more time for us to be able to execute against it. But when I look at strong cash flow that this company is able to generate, I look at the solid positioning of these brands, it really is something getting our product right and then doing a much better job of supporting it, if that comes to prolusion along with our growth initiatives, we have a high degree of confidence in what this company can do for our shareholders longer term. Q - John Morris: Thanks.

Your next question comes from Barbara Wyckoff with Buckingham Research Q - Barbara Wyckoff: Hi everyone, just a question for Jenny. Looking at your receipt first and second quarter, what percentage roughly would be devoted to fast-fashion, the kinds of things you talked about you know chasing this year versus last year, and then, what would be the ideal? And then the same question would be for the value price pay basics, where are you going to be this year in terms of penetrations to total mix for second quarter, and then where should it be ideally? A - Jenny Ming: First of all, I want to make sure and very clear, fast-fashion doesn't mean edgy fashion, our fashion is really on trend fashion. Q - Barbara Wyckoff: Right. A - Jenny Ming: No because someone would think, you would say fast-fashion that they go to the place first. Q - Barbara Wyckoff: I meant first, turnaround fashion I guess A - Jenny Ming: So for us, really is, wherever we see there is two ways to look at it, fast-fashion, one is that whatever is sounding really well in spring, February or March, we will go back in the order. So, that's one way of looking at it and then we also keep open dollar for any new fashion that's happening in the market making sure that we can go back and chase into it, so that's really two ways to look at it. As for the value opening price point, this is something we actually have put some guardrail to make sure that we don't tip over too much on the valued part, which we kind of did the last year or two. So we now are very very focused on making sure that we do not go to value and making sure that, but in the meantime, we have to remember we are at our best, when we hybrid between a specialty and the value. And our customer comes to us for both of that and we have to make sure that we have both of those products in the source for her or him. Q - Barbara Wyckoff: Okay thanks.

Your next question comes from Gabrielle Kivitz with Deutsche Bank. Q - Gabrielle Kivitz: Good afternoon. I was hoping you could talk about how you plan to manage the balance between basics and fashion at all three brands, the pendulum seems to have swung back and forth from maybe almost seven years now, and hopefully there has been some learning each time, but your heritage is obviously basics but the fashion piece is obviously important as well. Can you may be just talk about how that balance is going to be managed to address that each of the three brands? And then question for Byron on the cash balance, what you view is an appropriate level to maintain on the balance sheet, I think in the past you said about $2 billion unrestricted, has that changed at all? Thank you. A - Paul Pressler: Maybe, I will give you on the broadest level Gabrielle, on the basic and fashions. I think, one of the things that we have talked about over the last several years is how each of the brands have built their guardrails and filters associated with their various customer segments as to what they believe is the right balance between on-trend, emerging trend, essentials and basics. And I think, one of the things that we clearly have demonstrated over this last year that in spite of some of the challenges that we have had in hitting it completely right, we are not swinging the pendulum as we had done back in 2001. And our overall financial performance is more stabilized than what it has been in the past, and we feel that's really important. Having said that, as we start to build more confidence in getting the assortment mix right, which is exactly what each of the brands are working on, we will continue to buy and have more confidence in our buying in those assortment levels, we are able to win back our customer. So, on the one hand, I think we are feeling very good that we have guardrails on place, we know at the same time that as we, each of the brands and each of them are different and they have different strategies for different customers that we can win back those customers and make bolder investments, when we are seeing traction in those areas. But those guardrails are very specific and as Jenny had said, each one of our customers are coming in with a different purchase intent and that allows to maintain the balance and make sure that we are also delivering respectable financial performance. A - Byron Pollitt: Okay with regards to the ongoing cash levels, we feel today that it's still very prudent to maintain approximately $2 billion of cash unrestricted on the balance sheet as I mentioned the restricted doesn't have much play anymore, we are down to about $55 million of restricted. Let me just say though that, we are absolutely committed to distributing the excess cash getting it off the balance sheet and distributing it back to shareholders above that $2 billion level, and after we made sure that the growth requirements of the business had been fully funded. I do expect overtime as the business continues to demonstrate strong sustained cash flow that we will be bringing that level down below $2 billion but that's not today. Q - Gabrielle Kivitz: Great thank you.

Your next question comes from Dorothy Lakner with CIBC World Markets. Q - Dorothy Lakner: Thanks good afternoon, can you hear me? A - Paul Pressler: Sure. Q - Dorothy Lakner: Thanks, I wanted to ask Cynthia a question, something she referred to earlier about working with smaller teams and thereby getting I guess, closer to product category that you are making changes in, and I just wonder if she could elaborate a little bit on that initiative. And then secondly, just wanted to hear about product wise on the international front, obviously you’ve opened Banana Republic in Japan, you have been working with getting local, more locally designed products into the stores, and I just wondered if you could comment on the success there? Thanks. A - Cynthia Harriss: As regards to the reference that I made about smaller teams, what is really clear is that we want to ensure that we have the right talent and we hold the team accountable, but also ensure that they have the right decision-making responsibility with that. So, we are just being very explicit and very clear about those smaller groups of team members that we work closely together. And again as I said, the whole intention with this is for us to be speedy, on trend, and to be able to put our complete time and attention to ensure that we have that right fit quality etc. So, its really about right talent, very focused, and right leadership to help guide them. A - Paul Pressler: And then, on the international front, couple of things. One, we did deliver on the two pieces of growth that we felt were important in opportunities, one was bringing Banana Republic to Japan, we were very pleased with the performance to-date. And then secondly, we spent time this year building both our capacity to be able to enable the company to do franchise, and in fact that our first deal which we were very excited about. But keep in mind that 2005 really was the transition year where we were bringing our merchants, our planners, our marketing folks, many of which were being hired indigenously to those groups. So, we had a couple of small wins in a couple of areas with our products where they have been do local assortments, but we are going to see more tractions as we move forward as those folks are seeded for longer periods of time. Q - Dorothy Lakner: Will we see any in the second half of '06 or its' really an '07 story? A - Paul Pressler: I think, we are going to see hopefully some season by season improvements but keep in mind that for the international group, it probably lags a little bit. Q - Dorothy Lakner: Okay, great, thank you.

Operator, we have time for two more questions.

Your next question comes from Dana Telsey with, Telsey Advisory Group. Q – Dana Telsey: Good afternoon everyone. Can you please talk a little about the sourcing by each division. How do you won open-to-buy, how much do you want open-to-buy to these each division versus six products in order to be more trend right. And I think you had mentioned in the past about sourcing goods close to the home, where do you stand in that effort to each of the different divisions, and do you see helping your merchandise margin and the ability to achieve regular whole price sell through? Thank you. A - Paul Pressler: Hi Dana. Q – Dana Telsey: Hi. A - Paul Pressler: May be I’ll start on the broader sourcing question, different from the open-to-buy for the different brands but we talked about this year, and we have executed as a result of lifting of quarter, our ability to work more closely with vendors, to be able to take advantage of some greater efficiencies by looking at all of our outsourcing across the entire company whether that be with fabric or some of our cut and sell opportunities, some of the migration that we spoke about all came to position, our ability to place more of our goods with our best vendors. All of that is giving us leverage both in terms of cost and quality, but the teams are really also focused on leveraging these vendors for speed and innovation. And that’s where, where we do leave our open-to-buys opportunities, it gives us the chance more dynamically to go into the marketplace and work with our vendors to make that happen, I think the open-to-buy is really, by category, by season, by brand, it is hard to kind of describe on an individual basis, but I think overall philosophically you are hearing us speak to the greater urgency you need for speed, our ability to have more dynamic relations with our vendors, which is going to allow us to hold more open-to-buy and be closer to our decision making at times for the season for our customers. Q – Dana Telsey: Thank you

Your final question comes from Donald Trott with Jefferies & Company. Q - Donald Trott: Good afternoon, could you please give us an update on consumer acceptance of Forth & Towne, and any modifications of that format that you might be contemplating? A - Paul Pressler: Sure Donald. First, overall we are very pleased with the launch of Forth & Towne in other five stores, what we are learning so far is the customers who have come in and bought, are buying are really-really excited about the concept, when we look it all of our levels, our average transactions, our conversion levels or UPT, we are actually very encouraged into a degree of seeding expectations, I will say that not unlike the brands but we were a little disappointed about the overall traffic that were seen today like for those customers, now loyal customers and our royalty program, its been very-very positive. So we intend to continue to learn, adjust our assortment but overall we were very pleased, we expect in '06 to open approximately 10 additional stores in 3 to 4 additional markets. Q - Donald Trott: Thank you very much. Sabrina Simmons, Senior Vice President, Treasury and Investor Relations: Great I would like to thank everyone for joining us on the call today, all of the investor relations team will be available after the call for further questions, thank you.

This concludes the Gap Inc.'s fourth quarter conference call, you may now disconnect.