Evan Price - Vice President, Investor Relations Robert J. Fisher - Chairman of the Board, Interim President, Interim Chief Executive Officer Marka Hansen - President, Gap North America Byron H. Pollitt - Chief Financial Officer, Executive Vice President Sabrina Simmons - Senior Vice President, Corporate Finance

Gabrielle Kivitz - Deutsche Bank Dana Cohen - Banc of America Securities Margaret Mager - Goldman Sachs Jennifer Black - Jennifer Black and Associates Barbara Wyckoff - Buckingham Research Group Brian Tunick - JP Morgan Paul Lejuez - Credit Suisse First Boston Richard Jaffe - Stifel Nicolaus Jeff Black - Lehman Brothers Lorraine Maikis - Merrill Lynch Dorothy Lakner - CIBC World Markets Marni Shapiro - The Retail Tracker Dana Telsey - Telsey Advisory Group

Good afternoon, ladies and gentlemen, and welcome to Gap Inc.’s fourth quarter 2006 conference call. (Operator Instructions) I would now like to introduce your host, Evan Price, Vice President, Investor Relations.

Good afternoon, everyone. I would like to welcome you to Gap Inc.’s fourth quarter 2006 earnings conference call. For those of you participating in the webcast, please turn to slides 2 and 3. I would like to remind you that the information made available on this webcast and conference call contain forward-looking statements, including but not limited to forecasts relating to the timing of the Forth & Towne closure and the conversion of Old Navy outlet stores into Old Navy stores, diluted earnings per share excluding Forth & Towne’s net loss and on a GAAP basis, free cash flow, anticipated annual dividend, operating margin, year-over-year change in inventory per square foot, gross interest expense, depreciation and amortization, capital expenditures, effective tax rate, store openings and closings, and weightings by brand, real estate square footage, expenses and annual savings associated with the conversion of Old Navy stores and the closing of the Northern Kentucky distribution center, plans to repay debt and use of cash to repurchase shares, as well as other statements that express our expectations, anticipations, beliefs, estimates, intentions, plans and forecasts. Because these forward-looking statements involve risks and uncertainties, there are important factors that could cause our 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 28, 2006. Investors should also consult our quarterly report on Form 10-Q for the quarter ended October 28, 2006, 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 March 1, 2007, 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 non-generally accepted accounting principal measures, free cash flow and expected diluted earnings per share excluding Forth & Towne’s net loss, which under SEC Regulation G, we are required to reconcile with GAAP. The reconciliations of these measures to GAAP financial measures are included in our earnings press release, which is available on gapinc.com. Joining us on the call today are interim CEO, Bob Fisher; CFO Byron Pollitt; Gap Brand President, Marka Hansen; and SVP of Corporate Finance, Sabrina Simmons. Now I would like to turn the call over to Bob.

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IR firm sponsors transcript of micro-cap company: Consulting company sponsors company's transcript in sector of interest: Your company's name and promotion could have been on this transcript! Learn more, or email Zack Miller for details. Robert J. Fisher: Good afternoon, everyone. Thanks for joining us. I am pleased to be addressing you as interim CEO for Gap Inc. Though it is not my intention to be a candidate, I am fully engaged in moving this business forward until we name a permanent CEO. I am excited to be in this role because I am well aware of what this company is capable of. With more than 30 years of professional history here, I have a deep appreciation for our creative culture and the exceptional talent we have. Today I would like to talk about my priorities and share my early insights on what I believe is necessary to get our business back on track. Then we will review 2006 performance. Along with me, Byron will discuss the financials in more detail and Marka Hansen will share her initial impressions on Gap Brand. I have spent the last six weeks getting closer to our strategies and operations and meeting with employees at all levels of the organization. It is clear we have a lot of hard work ahead, but I believe that this company still has tremendous potential. For the coming year in 2007, our teams are focused on improving the fundamentals and stabilizing the business. Although we will make progress along the way, it will take time to restore our financial performance to competitive levels. There is no quick fix. We have recently put new leaders in place who are just now ramping up, but let me leave no doubt: I am confident we can and will regain our momentum. My first priority is to fix our core business. This means putting the right product and store environments back at our Gap and Old Navy stores and reconnecting with our customers by having a clear customer target. We need to rebuild our brands to once again be the premier stores in the marketplace. We have tremendous leverage and upside to our business when we get the product right. We saw this in 2003. That is when Gap and Old Navy’s performance help drive a four-point improvement in gross margins and earnings more than doubled. My second priority is to retain, develop and recruit the best talent in the industry. That includes supporting our search for a permanent CEO, and the Board is in the final stages of selecting a search firm. My third priority is to put the right organizational structure and resources in place. We must find ways to simplify our work and empower the brand so they can make decisions and create change more quickly, and that will create excitement for our customers too. As we announced in early January, we began the process of reexamining Gap and Old Navy strategies and tactics. Through this process, we are assessing what went wrong with the business so we can take the right actions. Here is what we have learned so far. Bottom line, we were not clear about who we were. Our product and execution suffered and our financial results were unacceptable. We believe three factors are the root cause of this poor performance: one, we did not have the right leaders in the right positions and we lost too much talent. We have already made some key management changes, as you know, and we are also redeploying key members of our management team against the most critical priorities. We are also focused on recruiting and retaining creative talent. Two, over the past four years, we tried to gain efficiencies by moving to greater centralization and it did not work in many cases. Our effort to leverage operations and save costs did not materialize as planned. In fact, it created bureaucracy and distractions. An example of this is what happened within our supply chain organization. We tried to aggregate buys across each brand. Ultimately, this slowed us down. The brands were not able to make independent decisions based upon their own distinct product and merchandising strategy. That said, we do benefit from considerable efficiencies by consolidating some functional areas, such as IT and finance. Overall, we are looking at ways to take complexity out of our system and give the brands more autonomy. Finally, we increased expenses with the expectation that our top line would grow. This clearly did not happen. So now we are looking for ways to make disciplined decisions to bring our expenses back in line. As a start, earlier this week we announced our decision to close our Forth & Towne stores after an 18-month test. We implemented a pilot of a concept we felt had great potential but we have not seen the kind of momentum required to support the meaningful value creation our shareholders deserve. Second, we decided to convert our Old Navy outlet stores to Old Navy stores to drive better returns. The competitive landscape for the outlet market has changed. From a business model and pricing standpoint, there was no longer enough differentiation between the Old Navy outlet and the Old Navy stores. Many outlet centers already contain a mix of full price and outlet stores, so we will still be able to leverage this important real estate channel with our Old Navy brand. And, in part due to this decision and as part of our ongoing assessment of network capacity, we will close one of our distribution facilities in Kentucky. Byron will take you through more detail and the financial implications of these initiatives in a few minutes. I am pleased that we have been able to move quickly on these decisions so that we can begin to stabilize the business. We are just at the outset of our efforts and there is more work to be done. We will continue to provide you with updates in the months ahead. Now let’s turn our attention to reviewing 2006. In the fourth quarter, net earnings were $219 million, or $0.27 per share and gross margins decreased 150 basis points to 32.5%. While we had some successes, such as Banana Republic’s continued progress, the launch of Piperlime and international franchising, these were overshadowed by Gap and Old Navy’s performance. Overall, customers did not respond well to product and our merchandise margins ended significantly below last year. For more detail, let’s take a look at each brand. I will talk about Old Navy and Banana Republic, and then Marka will discuss Gap. Dawn is not joining us today on this call. She is new to the company and just four months into her role and we think it is reasonable to give her some time, at least six months, to have a good read on things before asking her to speak. Dawn is very excited about the prospects and opportunities at Old Navy. As her broader assessment continues, she and the Old Navy team are focused on opportunities that will deliver incremental results as we work to stabilize Old Navy’s business in 2007. So here is what I can tell you about Old Navy. The team is focused on improving execution, and the key to this is clear, decisive leadership. Dawn is a very strong and experienced leader who is grounded in retail and she is giving the team firm direction. Looking back at the holiday season, we found that there were three fundamental issues: one, product acceptance continued to be a challenge, most notably in men’s and kids; two, our TV marketing campaigns were not effective; and three, our promotions and mark-downs were not well coordinated. Moving forward to address product, we will be investing more in big ideas by identifying relevant trends each season. We will back those ideas with the right inventory investment, visual merchandising and all elements of marketing. We will also improve our popular item of the week, so that it stands for fashion and newness each week of the year. With the proper depth of inventory, we will create a compelling statement to our customers from the moment they walk in the door. To improve Old Navy’s marketing effectiveness, our creative will be more consistent and communicate a strong message across all marketing channels. So for on sale, it will look like we’re on sale. We are also reducing our marketing spend at Old Navy by focusing our dollars on traffic-driving campaigns and decreasing print and special event marketing. As we announced last week, we are excited to welcome Michael Cape to lead Old Navy marketing. He joins us from J.C. Penny where he was part of the leadership team that helped reinvent that business and drive a fashion-forward message to its customers. Another opportunity for Old Navy is to better coordinate promotions and markdowns. We were too reactive and ended up confusing our customer. We are developing a proactive promotion with a mark-down strategy and have reorganized our teams to ensure alignment. These are just a few examples of how Old Navy is making changes to stabilize the business. Dawn and her team are underway with plans to strengthen Old Navy’s foundation and we will update you as we have more. Looking at Banana Republic, we are pleased with our continued progress. In 2006, we really focused on our core customer and improved our product offering to bring customers the right mix of elevated fashion and versatile essentials. To capitalize on our accessible luxury positioning, we also expanded the Banana Republic brand into new product categories, such as elevated handbags and fragrance. Customers responded and helped us deliver improved comp results with healthy merchandise margins. Marka has built a strong team at BR. We feel confident about the leaders in place that will help us continue the positive momentum we established in 2006. With that, I would like to turn it over to Marka who will discuss Gap.

Thank you, and it is great to be back at Gap Brand. In my 20 years with Gap Inc., I have had the opportunity to experience many facets of the business, from merchandising to human resources to taking Gap brand international. Having already spent nearly a decade with Gap, I truly have a passion for the brand and I am energized by the challenge of turning around this business. Given my tenure with the company and many experiences in both up and down cycles, I am very clear on the scope of the issues we face and I understand the complexities of navigating such a large effort. Today, I want to share with you my initial thoughts on the business and provide some insight into our immediate priorities. First, I believe the kids, baby, maternity and body business strategies are on track and there are opportunities for growth in both divisions. Clearly our biggest challenge is the Gap adult business. Because we have strong leadership with Pam Wallach in kids and baby and Tom White in body, I will be able to focus on the turnaround for Gap adult. In the adult business, we have disappointed our customers for too long and my immediate focus is on getting the product right, improving the customer experience and smart inventory management. Let me start with what I consider our number one priority, and that is product. I know that in order to deliver amazing product with great fit and quality, we are going to need the right creative talent on board. We need a distinct point of view and we must lead with creativity and innovation. Fortunately, we have a strong operational team in place, so I will be focused on acquiring, nurturing and developing our creative talent. In order to produce amazing product, we need to support a culture of creativity, innovation and risk taking, something that Bob and I are completely committed to. We have not had all the right people in the right positions for our important creative areas. That said, we are fortunate to have a deep bench of creative talent across Gap Inc. and it is our intent to leverage this talent. We took a step in the right direction when we brought Karen Hillman to lead Gap adult merchandising two months ago. Karen has a proven track record with over 15 years experience at Gap Inc., eight of which were at Gap brand. We are also looking to bring in new talent from outside Gap and are aggressively recruiting the right people to lead our critical creative areas. Another central foundation to product success will be to clearly understand who our customer is and what we stand for. It is crucial that we get all the creative teams -- design, merchandising and marketing -- focused on working towards the same customer. Previously we stated that our customer is between 18 to 35 years old and though this target may have been appropriate historically, I believe that in today’s highly competitive and more niche specialty environment, a target of 18 to 35 is too broad, and as a result we lost a strong point of view. For example, we confused our customers with our marketing campaigns which appealed to an older target with the Audrey campaign and then swung very young with our holiday campaign. In addition, the latter did not resonate. While we have not landed on a specific target customer today, you can expect this target to narrow within the 18 to 35 year old range, and it clearly will not be the 18-year olds. Even with this refinement of our primary target, the esthetic and appeal of the brand is one that we fully expect to halo both younger and older. In addition to a more defined customer target, our product should be grounded in the brand’s heritage -- great knits, clean bottoms, denims and khakis, and be highly relevant and fashion-right for today. In fact, the closest to this filter we have in the stores currently is our clean shop. Our teams are already working against this filter but to be clear, our assortments through fall are done. That said, we will be making marginal shifts that will begin to align and support our new direction. Ultimately, we need to deliver the style and quality that people expect from us. I have been in this business a long time and I recognize the importance of the customer experience. That means that once we create great product, we need to present it in a compelling, fresh environment. I am committed to ensuring that our store environments be as relevant as our product. We have been pleased with the remodels of 2006 and at this point, we are moving forward with the 75 to 100 remodels we had scheduled for 2007. In addition, we will continue to refine our fleet, updating our best stores and closing under-performing stores where necessary. In order to create and deliver amazing product and support a healthy business, we need to also focus on smart inventory management. In the first quarter, we probably have a little more inventory than we should, but we are committed to bringing our inventory more in line with our traffic trends as we move throughout the year. At Banana Republic, we have been disciplined about inventory management which paid off with healthy margins. I am bringing these practices to Gap Brand immediately to improve our inventory productivity. Before I close, I would like to touch briefly on marketing. We spent a significant amount on our 2006 marketing, which has actually extended into a spring Khaki TV campaign that will start airing next week. As you know, we did not see the lift in traffic we needed to justify the investment, though moving forward you can expect this investment to be reduced in 2007 and will most likely come from TV. That said, I am deeply committed to marketing and believe that it can be a strong traffic driver when in concert with fantastic products and strong word-of-mouth buzz. In closing, let me reiterate that I believe there is significant opportunity here and I am personally excited and energized to be here. Gap is an iconic brand that is recognized around the world. We have fantastic real estate, and though we have a few key positions to fill, we have plenty of smart people who are deeply committed to restoring the brand to its leadership position. Being clear on our vision for Gap Brand is a top priority and although it will take some time to be fully realized by the customer, I have absolute confidence we can get there. We will have a distinct point of view and we will lead with creativity, innovation, and risk-taking. I look forward to keeping you posted, and now I will turn it over to Byron who will give you an update on our financials. Thank you. Byron H. Pollitt: Thank you, Marka. Good afternoon. I will begin today by reviewing fourth quarter results and then provide an update on our outlook for 2007, which will include the financial impact of the initiatives which Bob has described. First, fourth quarter results; net earnings were $219 million, or $0.27 per share. Gross margin decreased 150 basis points to 32.5%. We generated $678 million in free cash flow this year. As a result, we ended the year with over $2.6 billion in cash and short-term investments. We increased our quarterly dividend to $0.08 per share and finally, we have utilized about $550 million of our $750 million share buy-back authorization by repurchasing 31 million shares, of which 14 million shares were acquired during the fourth quarter. For webcast participants, please turn to slide 4. Fourth quarter earnings were $219 million, or $0.27 per share. Please note the fourth quarter effective tax rate was 41.1%. This compares to a full-year effective tax rate of 38.4%. Full-year earnings were $778 million, or $0.93 per diluted share versus $1.24 last year. Fourth quarter weighted average diluted shares were 818 million, and full year weighted average diluted shares were 836 million. Please turn to slide 5, sales performance. Fourth quarter total sales were $4.9 billion, up 2% versus last year. Total company comp sales were down 7% in the quarter versus down 6% last year. Full-year comp sales decreased 7 and total sales were flat at $15.9 billion. This 7% spread was driven primarily by net new store openings and a 23% increase in online sales. Please refer to our earnings press release for total sales and comps by division. Turning to slide 6, gross profit. Fourth quarter gross profit decreased 2.3% to $1.6 billion. Gross margin was 32.5%, down 150 basis points compared to last year. 290 basis points of this decline was from lower merchandise margins driven by the mark-down and promotional activity at Gap Brand and Old Navy. However, this was offset by 140 basis points from the leveraging of occupancy expenses. The leveraging of occupancy expenses was driven by the 53rd week of sales against a rod expense that is largely based on 52 weeks, and last year’s $50 million expense as a result of a change in the way we recorded payments made in France to secure the right to lease stores. Full year gross profit was $5.6 billion. Gross margin was 35.4%, down 120 basis points from last year, driven primarily by lower merchandise margins at both GAAP and Old Navy. Please turn to slide 7 for operating expenses. Fourth quarter operating expenses were $1.3 billion, up $123 million over prior year, due primarily to investments in marketing and store payroll. Marketing expenses for the quarter were $161 million versus $126 million last year as a result of incremental marketing at both Gap and Old Navy. Full year operating expenses were $4.5 billion versus $4.1 billion last year. Marketing expenses were $581 million versus $513 million last year. Management recognizes that our costs have risen since 2003 while our efforts to grow the top line have not been successful. We are committed to bringing expenses more in line and remain focused on ensuring our investments deliver a healthy return. More on this topic in a moment. Turning to inventory on slide 8. We ended fourth quarter with $1.8 billion in inventory, up 6%. Inventory per square foot was $44, up 2% versus down 11% in 2005. Please turn to slide 9 for capital expenditures and store count. Full year capital expenditures were $572 million. We opened 194 new stores and closed 116, 79 of which were Gap stores. Company wide, we ended the year with 3,131 stores and square footage increased 3%. Please refer to our press release for end-of-year store count and square footage by division. Regarding cash flow on slide 10, despite a decline in earnings, we continue to generate healthy free cash flow. For the year, free cash flow, defined as cash from operations less capital expenditures, was an in-flow of $678 million. Please refer to our press release for a Reg G reconciliation of free cash flow. With regard to cash distribution, we repurchased a total of $14 million shares in the fourth quarter at an average price of $19.32, including commissions. Also, in 2006, we increased our dividend per share to $0.32 from $0.18 last year. We ended fourth quarter with over $2.6 billion in cash and short-term investments. Now I would like to give you an update on several of the initiatives that Bob discussed earlier, which are reflective of both our commitment to delivering returns to shareholders and reducing costs. First, we announced that we will be closing Forth & Towne. Given the sales, productivity levels, and the traffic momentum we had seen to date, we felt that the probability that we could achieve an acceptable return on investment from a full rollout of the brand was too low. As a result, we plan to close 19 Forth & Towne stores by the end of June, 2007. The pretax expense net loss associated with Forth & Towne is expected to be approximately $60 million, of which about $40 million is expected to be from closure costs, and about $20 million is expected from operating losses. This will represent about $0.04 per diluted share and will be recognized primarily over the first and second quarters of fiscal year 2007. Second, we are converting Old Navy outlet stores to Old Navy stores. As Bob stated, given the change in competitive environment, there is no longer a clear distinction between the two businesses. We expect to convert the 45 outlet stores by October of this year. This decision has no impact on our Gap Outlet and Banana Republic factory stores. In addition to gaining cost efficiencies in our management structure, this decision also allows us to close one of our Northern Kentucky distribution centers. The expenses associated with converting the Old Navy outlet stores and closing the distribution center will be about $6 million in 2007. However, annual savings from these measures are estimated to be $12 million. Turning to slide 11, I would now like to review our outlook for 2007. As Bob mentioned earlier, 2007 will largely be a transition period at Gap and Old Navy. The new leaders in place at our largest divisions are in the early stages of resetting the strategies and tactics in order to improve performance. As a result, we are broadening our guidance to better reflect the state of our current brand strategies. Now let’s review our 2007 guidance. We expect diluted earnings per share, excluding Forth & Towne’s net loss, to be $0.80 to $0.90 per share in 2007. We expect diluted earnings per share on a GAAP accounting basis to be $0.76 to $0.86. Please see today’s press release for a Reg G reconciliation. We expect operating margin to be in the high single-digits. Inventory per square foot at the end of both the first and second quarters is expected to be flat compared to last year. I would like to spend a moment on the company’s real estate strategy for 2007. At this time, we expect to open about 230 new stores and to close about 200. The openings are weighted towards Old Navy as we continue to believe there is additional real estate opportunity and the returns remain attractive, and the closures are weighted to Gap and include the impact of the 19 Forth & Towne store closures. Please also note the 45 Old Navy outlet conversions will be recorded as both a closure and opening to reflect the reassignment. Full year net square footage is expected to be up about 1%. We remain committed to regularly evaluating our fleet performance to ensure that stores are meeting appropriate financial returns. During the year, as part of their analysis, our new leaders will be evaluating their respective brand’s store economics as it relates to their go-forward strategies, which could influence store openings and closures. As their strategies become finalized, we will provide you with an update -- so more insight to come. You can refer to our fourth quarter press release for a summary of store activity and gapinc.com for 2007 store guidance by division. Full year capital expenditures are expected to be $700 million. Here is the breakdown: stores, $545 million, with $235 million for new stores and $310 million for existing stores; IT, about $110 million; headquarters and distribution centers, about $45 million. We expect full year depreciation and amortization to be about $550 million. Interest expense for the year is expected to be about $35 million, and for the full year, we expect the effective tax rate will be about 39%. Now for cash distribution. We continue to deliver healthy free cash flow and expect 2007 free cash flow to be about $500 million. We remain comfortable with a minimum cash target of $1.5 billion. Please refer to the Reg G reconciliation of expected free cash flow. In September 2007, we plan to repay $325 million in debt, leaving $188 million in long-term debt. As a reminder, we consider our off-balance sheet lease obligations to be debt, and with over 3100 stores, this amount is substantial. As we have stated, it is our intent to increase dividends at a rate greater than or equal to the growth in annual net income. As net income in 2006 has declined, we will maintain our quarterly dividend at $0.08 per share, which represents a payout of about 35% of 2006 net income. Regarding our share repurchases, we plan to continue to use excess cash to opportunistically repurchase shares. At the end of the fourth quarter, we still had $200 million available under our current authorization. In summary, we are committed to generating shareholder value by delivering a product-driven top line, turning inventories more profitably, improving margin through tighter expense control, and returning cash to shareholders through dividends and share repurchases. You will be hearing from us updates on each of these initiatives over the next few quarters. Thank you. Now I will turn it back to Bob. Robert J. Fisher: Thanks, Byron. Looking forward, I am committed to the priorities that I outlined earlier. At the end of the day, our success will require extreme focus against the things that matter most. To me, it is tapping into the passion of our employees and re-instilling creativity and innovation in everything we do, and it is about simplifying our work at every turn. Every day, we are uncovering new ways to get back to the product-focused and customer-focused company that made us an American icon, but as we reinvigorate creativity into our business, we will never lose site of the importance of financial and operational discipline. These things can and will stay in healthy balance. At the beginning of my remarks, I said I was excited to be leading the company at this time. Let me tell you why. We have powerful brands and passionate people. Every day I am energized by the amazing talent and resolve that I see in the people who work here. This gives me confidence that we will get back to where we need to be. We have been tested before and we have demonstrated our ability to overcome adversity. Working alongside the management team and the Board of Directors, you have my commitment that we will chart a new course to reinvigorate our brands and deliver strong returns to shareholders. Now, we would like to address your questions.

That concludes our prepared remarks. We will now open up the call to questions. We would appreciate limiting your questions to one per person.

(Operator Instructions) Our first question is from Gabrielle Kivitz of Deutsche Bank. Gabrielle Kivitz - Deutsche Bank: My question is on the Gap division, so I guess it is a question for Marka. I hear what you are saying about returning the brand to its heritage, but I am just curious if you could elaborate a little bit more. The marketplace is obviously very different than it was when the company was achieving peak metrics. I think some of the key items that you had previously focused on have become much more commodity like. The environment has become much more competitive. We are seeing a lot more pricing pressure. I just wonder if you can talk about your thoughts on the differences in the environment, talk about how similar or different you think the brands will be, more specifically the Gap Brand will be when you are through some of this repositioning, how different it will be from the brand we remember.

I absolutely know that we are not the brand of 10 years ago, nor the brand when I was here in 2002, but I know this: we do need a narrow target focus and it does not mean we cannot halo older or younger, but we need to aim at a more narrow focus. That being said, I think the categories that are our heritage, those being things like denim, like clean bottoms, like being there for people who want either casual work or casual weekend, that we can reclaim an authority position there and that is my intention.

Our next question is from Dana Cohen of Banc of America Securities. Dana Cohen - Banc of America Securities: Just two quick things. First of all, Bob, maybe you could just help us on the search process, sort of a timetable here. Months have already passed, still have not hired a search firm. Obviously I have never done this, but can you just help us understand, is this the normal timeframe? Particularly since it does not seem that the number of people to go after is that large. Second, on the store growth at Old Navy, just help us to understand why keep growing it now, given the trends in the business? Robert J. Fisher: Dana, on the search firm, we are literally in the final stages of selecting the firm. The committee has not been sitting idly. Conducting a thorough decision on the right search firm takes time and the Board is committed to selecting the right CEO. So again, we have not been sitting idly and we are just about to finish this process up. Byron H. Pollitt: Dana, with regard to the Old Navy openings, let me just first clarify; of the 115 openings that we have listed, 45 of those are conversions from Old Navy outlet to regular Old Navy stores, so it is not quite as many as it might first appear. On a net basis, because we are closing some Old Navy stores, it is only 50 net new openings and each one of those store openings have been individually pro forma’d, reflecting the current trends in the business. It is good real estate with attractive returns and that is why we are adding them to the fleet.

The next question is from Margaret Mager of Goldman Sachs. Margaret Mager - Goldman Sachs: I have a question on the marketing expense outlook. I think both Old Navy and Gap stores both said that you will be cutting back on the marketing. I am just wondering how much you expect the 581 to drop in ’07. What is factored into the $0.80 to $0.90 EPS guidance? I am not clear from the presentation. What is it that is driving a down year in earnings in ’07 from your perspective? Thanks. Robert J. Fisher: Let me talk about the marketing spend reduction. We made significant incremental investments in 2006 and when we took a look at that, it just did not pay off, so we are pulling back from where we felt we were the prior year. I think it is a smart business decision. In Gap, it is principally TV advertising. At Old Navy, it is around print and promo events. We are still committed to marketing. Margaret Mager - Goldman Sachs: I was hoping for a sense of magnitude in terms of where you go from 581? Byron H. Pollitt: Margaret, you know we do not guide to specific marketing numbers but you should -- just as Bob said, we made incremental investments in ’06, did not deliver the return we were looking for. We have decided to cut that back from where we were as it relates to the incremental investment. With regard to why guide down, our attempt here is just to be very realistic with regard to our earnings prospects. We have Marka and Dawn in the early stages of resetting the direction of our two major brands. It is no quick fix. ’07 for us is about stabilizing the businesses and we frankly just through it prudent to limit expectations for 2007 and provide a wider earnings range in our outlook. Margaret Mager - Goldman Sachs: With all due respect, you are talking about cutting expenses. You are cutting marketing, you are focusing on your inventory -- is it sales? Do you expect sales to be your primary issue again in ’07? Byron H. Pollitt: I would say that, yes, that we would expect -- what we are attempting to signal is that ’07 is a transitional year in terms of trying to stabilize our sales trends. With regard to expenses, we are very serious about tackling our expense position. When you look back to 2003, we have added a meaningful increment to our expense base with the anticipation that we would have significant growth on the top line. That growth has not materialized. The seriousness with which we are taking a hard look at expenses I think is indicated by the type of initiatives that we have already discussed and, as I am sure you can appreciate, in order to take expenses out of a cost structure in a way that will not allow them to so easily creep back in, this takes time to thoughtfully do and it often is accompanied by one-time expenses, which we also have to factor into our guidance.

The next question is from Jennifer Black of Jennifer Black and Associates. Jennifer Black - Jennifer Black and Associates: Good afternoon. I wonder if you could comment about Piperlime. Could you give us some color on Piperlime? Byron H. Pollitt: We are very encouraged with the start of Piperlime. Recognize that we only started it three months ago from a standing start, where the satisfaction and intent to recommend customer reactions are off the charts in our post-fulfillment surveys. Operationally, we have had no hitches. We have a healthy customer mix between shoppers that are sourced from our existing customer files and from brand new customers. At this point, we three months into it. We have successfully leveraged an existing platform and we are successfully leveraging our existing customer file and marketing database. We are very encouraged, but we are just -- it is three months into it. Jennifer Black - Jennifer Black and Associates: Is it profitable, or close to profitable? Byron H. Pollitt: We don’t talk about that just yet, but we look forward to the point where we will be more specific about the financial results. We are just getting started with this so it would be premature to talk about economics.

The next question is from Barbara Wyckoff of Buckingham Research Group. Barbara Wyckoff - Buckingham Research Group: Just a couple of questions. Could you talk about the size of your online business overall and by brand? You did say it grew 23%. If you could give us some insight on projected margins by division, where would you think they should go say two or three years down the road from now, by brand? Byron H. Pollitt: The size of the online business is $730 million for the year and that -- consider that virtually all base business, the base brands of Gap, Old Navy, Banana Republic -- Piperlime immaterial contribution to that at this particular point in time. We will be pushing the brand, the direct sales for each of our brands as in our 10-K, so that you will see it there. We do not at this point, our margins below the aggregate -- we do not disclose margins for the Internet. But I will tell you that our Internet business is very healthy, strong returns to capital, very profitable, full cost P&L.

The next question is from Brian Tunick from JP Morgan. Brian Tunick - JP Morgan: First one for Byron, just on the under-performing stores. It sounds like a couple of years ago, we cleansed the store base, so just curious how much those stores are under-performing, whether or not it is return on sales or on a sales basis. And then maybe someone could comment about the media speculation that you guys have hired Goldman Sachs to explore strategic alternatives. If you hire somebody, does that change perhaps the outlook? Would you still consider splitting up the company, as again has been reported in the media? Thank you. Byron H. Pollitt: Let me start first with the store closures. You are absolutely right in the sense that we have done quite a bit of cleansing. The vast majority of that cleansing has been with Gap Brand. Since 2002, we have closed over 400 Gap stores. We are planning to close another 80 in 2007. As we look to the future here, I think what is important to recognize is that it is important to give Marka and the team some time to lock down their customer target and to get the product right, because when both of those are settled, we will be in a much better position to right-size the fleet for Gap. I do want to add to that that when we go through an individual store analysis, we do not simply assume today’s performance and sales productivity levels. We do a full return on investment and calculation for a store that does assume some improvement in productivity. Robert J. Fisher: Byron, let me answer the second piece of the question, or the first piece of the question. We do not comment on market rumors. We never have. My efforts and the team’s efforts are focused around turning around the Gap and the Old Navy business. We are making the necessary changes. I think if we do that, it brings tremendous value to the shareholders. Like any responsible management team, we periodically evaluate alternatives to drive shareholder value but let’s not forget what has happened in the last six weeks here. We have a new CEO. We have a new Gap President. We have announced the closing of Forth & Towne. We have converted the Old Navy outlet to the Old Navy stores. There are no quick fixes in this business. We are taking a serious, in-depth look and we have to allow appropriate time for the leaders to asses their businesses.

The next question is from Paul Lejuez from Credit Suisse First Boston. Paul Lejuez - Credit Suisse First Boston: Marka, can you maybe talk about your role in the Gap brand turnaround back in 02-03? What do you see as the similarities today and then what are the big differences?

In 02-03, I was focused primarily on adult and all-around merchandising, visual and planning. I do not see anything any different there. There are tons, great talented people here with lots of great ideas. I think it is just about focusing the team, focusing on just compelling product assortments and a great store experience. It is not that difficult. It is just about getting everybody pointed in the same direction and being absolutely relentlessly focused on great product and great creativity, and there is plenty of talent in the team to make it happen. I do realize it is not the Gap of when I was there, so I am being very careful to make sure I do not just go back and say what worked for us in 2002 because the landscape is different. But in terms of how you fix businesses, I have done it a bunch of times and I really like to do it and I am going to do it again.

The next question is from Richard Jaffe of Stifel Nicolaus. Richard Jaffe - Stifel Nicolaus: A question on CapEx, given the expense cutting and the store count that on an absolute is very similar to last year’s level. Why the increase in CapEx by about $125 million? Byron H. Pollitt: All of the increase is concentrated in remodel. The amount on new stores is very close to what it was last year and as I am sure you are aware, we have said for some time that we are behind the curve in terms of refreshing our fleet, and so both Old Navy and Gap are receiving an incremental increase in the amount of remodels, a budget for the coming year. We feel this will play an important role in our turnaround. Richard Jaffe - Stifel Nicolaus: Could you just remind us of the number of remodels last year and the plan for this year, by division? Byron H. Pollitt: What I will do is give you Gap, so last year, we did about 25 remodels for Gap. We are planning 75 to 100 remodels for Gap. I do not have Old Navy’s remodels for last year handy, but what I can tell you is that the remodels for Old Navy are approximate to the number of remodels that are planned for Gap this year. Richard Jaffe - Stifel Nicolaus: Got it. And just a question for Bob, given the process that has to occur with selecting a headhunter, or a headhunting firm and then proceeding with a search, and given the time that it took last time the firm did a CEO search, it could be quite some time. I was wondering, Bob, are you committed to staying the course for what could be six months or longer until a new CEO is found? Robert J. Fisher: Absolutely. I am fully engaged in driving the business forward and I will do that until a permanent CEO is found. I have committed that to the board and we will do whatever it takes. Richard Jaffe - Stifel Nicolaus: Could you be convinced to participate in the search yourself, or be a target of the search? Robert J. Fisher: It is not my intention to be a candidate. The Board asked me to take on the role as Interim CEO.

(Operator Instructions) The next question is from Jeff Black of Lehman Brothers. Jeff Black - Lehman Brothers: I guess a couple of questions. First, for Mr. Fisher, I was surprised to hear your reply to the benefits from purchasing power from the three divisions really do not go down to the supply chain. Given that and given the complexity that we face with multiple divisions and a Europe division, what are the thoughts for keeping everything together here at Gap as you look at to hire a new CEO? Why not cut off Europe, sell Banana, do something that would really refocus this chain on Gap and Old Navy, as it sounds like you are trying to do? And then for Byron, what is an optimal expense rate? What is the low-hanging fruit and really, how long does it take us to get there? Thanks. Robert J. Fisher: Let me talk about centralization. The keys here for us is that we empower our brands. One of the things that happened when we went to more of a centralized structure as it related to sourcing was that we lost the distinctiveness in the brands, we lost the nimbleness in the brands. Each of our businesses, if you start with Banana Republic, the smallest of the three businesses, at $2.5 billion, there is not that much more of an advantage to scale in terms of our sourcing opportunity. Old Navy, with the size that it is at, the same thing. Centralization is appropriate, however, in certain areas and those are areas that do not, that aren’t related to the distinctive of the brands -- areas like IT and finance. And then there are certain functions like online and CRM where we get incredible power in being centralized. Byron H. Pollitt: What I would say, Jeff, as opposed to talking about an optimal expense rate at this point, what I would say is that we have talked quite a bit over the past year about the importance of determining whether incremental investments in store payroll and in marketing could make a difference, and we made those investments. You have also heard that we are going to be dialing those back because we have not got the return we were looking for. The truth of the matter is though as you look back at our cost structure from 2003, our costs have risen across a broad range of categories, and so we are seriously addressing through a complete look at our cost structure, significant and serious opportunities to bring down our costs. So as I related with an earlier question, to get these, to design out these costs so that they do not creep back in, will take time during this year but we do intend to take serious action this year, as indicated by the three initiatives we were prepared to talk about during this call.

The next question is from Lorraine Maikis of Merrill Lynch. Lorraine Maikis - Merrill Lynch: I just wanted to talk a little bit about the Gap remodels. If you could just share with us some of the metrics you have found on the 25 that you did in ’06 in terms of return on capital and sales growth that you generated from these remodels. Thanks. Byron H. Pollitt: What we find is that when we do the Gap remodels, we got a modest lift in retail comp. We got a modest life in margin versus our store control group. However, it is absolutely clear that in order to get the returns we are looking for, we have to get the product right in combination with the remodel, and that we did not do. So as we approach the coming year, we will be looking hard at, Marka and the team will be working hard at getting the product more targeted so that when we do the remodels, the stores have been remodeled in a way that best reflect the target customer segment that the team will narrow it down to, and then we will look at the returns of those stores with better product remodeled to determine the ongoing business model economics that are proper for Gap.

The next question is from Dorothy Lakner of CIBC World Markets. Dorothy Lakner - CIBC World Markets: I wanted to ask Marka if she could share with us how much tweaking you think you can do to the fall product and what should we expect for holidays? Is the holiday a line that you will be able to completely effect, or 50% effect? If you could give us some color there. Then, a question I think for Byron. You have given us very detailed guidance for ’07 as a whole. I wonder if you could give us a little bit more color on what we should expect in the first-half of the year, and particularly in the first quarter. Speaking to that, how we should look at the charges for closing Forth & Towne, how that should be divided, if it should be just divided equally between the first quarter and the second quarter.

I will answer first. I think what I am trying to do is make incremental improvements every day on every thing, product being the most important thing. I do not want to make any promises of curtains up on a certain day and you will see a new, reinvented Gap. I think that was something we have done in the past and it does not pay off. The customer has to tell us when we have it right. That being said, we are working on spring development, holiday development, and fall development, or fall placement, all at the same time and doing what we can to make sure we believe it is brand right. That is all I am prepared to say at this point. Byron H. Pollitt: With regard to Forth & Towne, as I have said, I have given you the total charges of about $60 million, the vast majority of which would occur over the first and second quarter. It is a little premature to break it apart between quarters, but what we do intend to do later in the year once we have closed the last door and revenue production has stopped at Forth & Towne, it is our intent to reclassify this as a discontinued operation and then we will be able to more specifically describe the costs that in effect should not repeat the following year. In connection with guidance, our practice has been to give full-year guidance. We are not prepared, at least at this point, to depart from that practice, so your updates on the first quarter and the first-half, we will give them with every sales call. That will give you insight as to how we are progressing through the quarter. And then, at the end of the first quarter, we will give you a look back on what occurred, what we think was ongoing expense, and if there are any special call-outs on one-time.

Operator, we have time for two more calls.

The next question is from Marni Shapiro of The Retail Tracker. Marni Shapiro - The Retail Tracker: Congratulations on the move forward on the product. I am very happy to hear that. Could you talk a little bit about the marketing? You have talked about cutting it back and refocusing it, but are you considering maintaining the levels of marketing where the product is healthy? So maybe kids, baby, body? Have you thought about possibly even increasing it in some of those areas or at Banana Republic?

I will start just by saying that as you know, a lot of our plans are still in the making, so we tend to give you a season at a time with regard to our definitive marketing plans. So with regard to Old Navy, we are of course launching television tonight, so we will be on for five weeks versus six weeks last year. You will see that our presence for spring is largely about the same, so three circulars for spring versus three circulars last year. Then, as Marka alluded to in her remarks, Gap for spring still has quite a bit of marketing. Last year we had no television. This year we actually will be on for four weeks and that will start next week. So the rest of the seasons are really still in the making and we will be describing that more to come.

The final question is from Dana Telsey of Telsey Advisory Group. Dana Telsey - Telsey Advisory Group: I wanted to follow-up on just mark-down rates this year versus last year. How are you looking at the mark-down rates by brand, or for the overall company? Given your abilities to efficiently source, is there any improvement that you can see there on the cost structure side? Lastly, have you adjusted your hurtle rates for new stores and for lease renewals as for what you are expecting? Thank you. Byron H. Pollitt: As we look to last year, the much higher degree of promotional and mark-down activity actually caused a decline in both our regular and mark-down margins versus the prior year, so we actually got hit on both. As we work hard to get our inventory levels more closely in line with our actual traffic trends, we would expect in the coming year to sell less at mark-down. With regard to hurtle rates, our hurtle rates remain constant. Our cost of capital has not changed materially and so the hurtle rates remain the same. What is different is our projections. So it is not the model. It is not the business model. It is the assumptions you make about what kind of sales level, growth in margins you could look forward to in the future.

I would like to thank everyone for joining us on the call today. As always, the investor relations team will be available after the call for further questions. Thank you.

Thank you for your participation in today’s call. You may now disconnect.

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