Mark Webb – VP, IR Sabrina Simmons – EVP and CFO Glenn Murphy – Chairman and CEO

Michelle Tan – Goldman Sachs Kimberly Greenberger – Citigroup Betty Chen – Wedbush Securities Brian Tunick – JP Morgan Jeff Black – Barclays Capital Dana Telsey – Telsey Advisory Group Jeff Klinefelter – Piper Jaffray Edward Yruma – KeyBanc Capital Markets Michelle Clark – Morgan Stanley Barbara Wyckoff – Jesup & Lamont Securities Marni Shapiro – The Retail Tracker Evren Kopelman – Wells Fargo Securities Paul Lejuez – Credit Suisse John Morris – Bank of Montreal Lorraine Hutchinson – Banc of America/Merrill Lynch

Good afternoon, ladies and gentlemen. My name is Schnell [ph], and I will be your conference operator today. At this time, I would like to welcome everyone to the Gap Inc. first quarter 2010 conference call. (Operator instructions) I would now like to introduce your host, Mark Webb, Vice President of Investor Relations.

Good afternoon everyone. Welcome to Gap Inc.’s first quarter 2010 earnings conference call. For those of you participating in the web cast, please turn to Slides 2 and 3. I like to remind you that the information made available on this web cast and conference call contains forward-looking statements including those identified in today’s earnings press release, which is available on gapinc.com, 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 30, 2010 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 May 20, 2010, 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 the non-generally accepted accounting principal measure free cash flow, which under SEC Regulation G we are required to reconcile with GAAP. The reconciliation of this measure to the GAAP financial measure is included in today’s earnings press release, which is available on gapinc.com. Joining us on the call today are Chairman and CEO, Glenn Murphy, and Executive Vice President and CFO, Sabrina Simmons. Now I would like to turn the call over to Glenn.

Thanks, Mark. Good afternoon everybody. Let me just make a few comments, before we hand it over to Sabrina who will give you the financial update for Q1. First off, in general we were pleased with our performance in the first quarter. One of the metrics we have been looking at a lot more closely in the last year or so is, what does our growth look like in the top line. So in the third quarter we flat comped, in Q4 we were plus 2, and in Q1 of 2010 we had a plus 4 comp. So going in the right direction, we felt good about that. With that said, it is still a very volatile consumer environment. I'm finding it personally, having been a retailer for over 20 years that it is just very difficult to predict patterns, week-to-week, weekday to weekends. Most importantly to me though is we were able to take that improving top line, and really leverage the business. We have been talking a lot about that here internally. Once we start turning our attention towards top line, how do we maintain that disciplined work so hard on? So getting 290 basis points of leverage on the operating margin line was important to me. I'm actually pretty proud of the teams getting off to a good start as it is critical in any business. So I'm glad that we came out, had a good performance, delivered on our expectations. I think that sets us off well emotionally for the rest of the year to get off to a good start in the first quarter. There are certainly a few areas that I am focusing on as I look forward to the rest of the year. I'm looking for a little more intensity to have when it comes to our value proposition messaging in the business. I'm looking for a bit of a stepped up effort in our business around our category strategies and a dominant position we are going to take within brands on key categories. And lastly, I'm looking for the team to show some improvement on the consistency of our product delivery. If we can get some traction on those three key components, along with the culture of discipline, I think it will set the business up well for continuing to perform at a respectable level going forward. Let me now turn and give you a quick update by brand. Old Navy had a very good first quarter, particularly in kids and baby. And I think we have spoken before on this call that the way we look at Old Navy is that that key customer buys for here family first and then buys for herself. And the kids and baby business under great leadership has really had a good quarter and a market share gaining quarter. The new stores we are doing, the remodeled stores we are calling project one [ph], 100 of them got done in Q1, but in fairness the majority of those opened on the last weekend of the quarter. So we're not going to see the benefit of the repositioning of those stores until the second quarter. Some work is being done by Tom Wyatt and Nancy Green right now to tighten up the assortment a little bit. I think their view is the assortment probably got a little too broad over the last six months. I think there is some good work going on there, which I will see in the second half of the year. And everybody at Old Navy is very excited about our new CMO joining us, Amy Curtis, a very talented person, great resume, great experience, and I think she is going to make a real difference in the positioning of that brand to our consumers. At Banana Republic, Julie and Simon are working well together, seeing some definite benefit in products in the key categories they are looking at, seeing that show up in pants and in sweaters, just the two examples of categories that we are very focused on. Our new store remodels for Banana Republic are doing quite well. I would encourage anybody who hasn't seen them to go to Soho. I was just there two weekends ago for the relaunch of that store on Broadway. It is a beautiful looking store doing extremely well on all metrics, and one key win I would say in the first quarter for Banana Republic is in the clear definition of the heritage and the monogram line. I have always been a fan of those lines. I think it differentiates Banana Republic and Jack and the teams have done a really good job, and we will see that coming more and more to market as we look further into the year. At Gap, there is a lot of work going on with the team. We talked last quarter about some reshuffling we did of executives, and we have very high expectations of that brand. It started showing some better traction and some improvement in its business. I'm pleased with the rhythm I am starting to see in denim, on the heels of 1969 coming out every month with patch and repair, white denim. This next month is bleached denim. I think they are really getting how dominant we can become in that category, and start to build momentum on it. Speaking of 1969, she also mentioned that we opened our third 1969 store, which is obviously a very strong denim expression for us. And we are learning in our stores, learning about merchandise, learning about fixtures, learning about what customers expect from a brand like 1969 denim, and we're taking those learnings and we're putting them back in to the core Gap stores. As a matter of fact, we're going to be spending a little bit of capital on a couple of hundred stores, which will be opened up by the end of July to coincide with the anniversary of last year's launch of 1969. And we just announced last week that Rosella Giuliani is going to join the company. Rosella is the senior merchant and designer over at Seven for All Mankind, phenomenal denim expert, and we are going to move her whole denim team from New York over to LA. One of the strategic decisions we made was to move that team under Rosella’s leadership, working with Patrick Robinson, working with (inaudible) to bring denim to the next level inside of Gap stores. That team is looking forward to the relaunch of black pants, which will be in our stores on July 26, and will be marketed at the end of August. I think we're holding that team accountable to try to get the same kind of performance on the black pants that we saw in Denim. Use it as a springboard to not only buy loyalty, but get new customers into their stores. Let me just give you a quick update on international business. Everything is progressing very well in China for a late fall opening of the Gap brand in the Chinese market, and see some very good progress for the team on strategy, definitely some thoughtful ideas when it comes to our value proposition, and really the real estate team is starting to get good traction. Banana Republic opened up its third store in Europe, Covent Gardens in London. Its early indications is it will be as successful as the first two. So we're very pleased about how Banana Republic is progressing. A couple of more stores to come this year also in London, and we are looking forward to opening up in Paris in the early part of 2011. Our Italy launch is progressing very well. Looking forward to our Milan store openings, both Banana Republic and Gap. And we're starting to see some potential opportunity in Rome. More about that later on, but that is more of a wrong 2011 opportunity. Online launches are on target for Canada and Europe. As we talked about on the last conference calls, they are going to launch in the month of August. Our global outlet team has been very busy this quarter, adding new stores in Canada, adding new stores in Japan, new stores in the UK, testing a few new concepts. So I'm pleased about that and they have put together an excellent strategy for China. And lastly, we will be testing a store, brick and mortar store for Athleta later this month. It is a test. But as I have indicated before when we bought Athleta, there was a number of steps we had to get through, integration, putting them on the universality platform. This is the next evolutionary step for Athleta. We feel very good about the performance we are seeing well ahead of our expectations in the Athleta business, and this is the natural next step. So that is an update on Q1, let me now handed it over to Sabrina to take you through the financial update, and then I will be happy in a few minutes to answer any or all questions that you may have. Sabrina.

Thank you, Glenn. Good afternoon everyone. For those of you participating via web cast please turn to slide four. Over the last few years, we worked hard to strengthen our operating model. Our merch margins are at ten-year highs. Our expenses are tightly managed. Our operating margin is expanding and our earnings and free cash flow are growing. Now as we focus on driving sales, it is our intent to continue leveraging this operating model. Doing so enables us to make investments for the future, while delivering earnings growth and distributing cash to shareholders. Our first quarter performance represents good progress against our goals. Here are some highlights for the quarter. Comp store sales were up 4% with all North American divisions posting positive comps for the quarter. Gross margins were 42.1%, up 250 basis points. Operating margins were 14.2%, up 290 basis points. EPS grew 45% and we generated $222 million of free cash flow. Please turn to slide five for our earnings recap. In the first quarter, net income grew by 40% to $302 million and EPS was $0.45 versus $0.31 last year. Included in these results are about $0.02 of benefit related to the favorable resolution of tax issues in the quarter. About a penny of the benefit is reflected in the interest, and the other penny is reflected in the tax rate. Please turn to slide six, sales and gross margin performance. Our strategy is to drive sales by selling more units while maintaining the healthy margins we have achieved. When we do this rent and occupancy should leverage, and gross margin rates should expand. In Q1, total sales grew 6% to $3.3 billion, gross margin expanded 250 basis points to 42.1% with merch margins up 160 basis points, and 90 basis points coming from rent and occupancy leverage. Gross profit dollars grew by 13% to $1.4 billion. Looking at inventory on slide seven, inventory dollars at the end of Q1 are up 10% to $1.5 billion. After 4 years of Q1 inventory reductions, we have begun making targeted investments back into key categories like denim. In addition to supporting our goal of growing sales, these investments build in stock levels to improve the customer experience in our stores. And we have also been reducing square footage. These actions combined result in inventory dollars per square foot up 12% this year. This compares with Q1 ’09 inventory per square foot which was down 12%, on top of Q1 08, which was down 17%. Turning to slide eight, operating expenses. In Q1, we continued to demonstrate cost discipline. Despite investments in growth, we are able to leverage operating expenses by 50 basis points. Operating expenses grew $41 million to $927 million. Marketing grew $17 million to $113 million driven by our Old Navy and our online brands Athleta and Piperlime. Please turn to slide nine for capital expenditures and store counts. As I mentioned earlier, we have been reducing square footage, primarily at Gap and Old Navy. We ended the quarter with 3085 stores, and net square footage was down 2% compared to Q1 2009. We opened nine stores weighted towards international, and closed 19 weighted towards Gap brands. First-quarter capital expenditures were $107 million. Regarding cash flow on slide 10. For the quarter, free cash flow was an inflow $222 million, compared with an inflow of $139 million last year. We repurchased 14 million shares in the first quarter for $296 million, and we ended the first quarter with about $2.5 billion in cash and short-term investments. And now I would like to discuss our outlook for the rest of the year. Please turn to slide 11. As I’ve said, we plan to drive sales growth while maintaining the healthy merchandise margins we have achieved. Doing so should leverage rent and occupancy costs. Going forward, the opportunities for further gross margin expansion will come primarily from broad leverage. The primary driver of sales growth is increased unit sales. Similar to Q1, Q2 inventories have been declining since 2005. In order to improve sales productivity and drive comp, we are prudently building inventory in low-risk categories. We expect Q2 ending inventory per square foot to be up in the low double-digit, similar to Q1 and that compares to negative 14% in Q2 last year and negative 17% in Q2 of 2008. Moving to operating expenses, we expect the investments in our growth initiatives to be higher in Q2 versus Q1. In addition to remodeling another 80 Old Navy stores, we are now beginning to incur expenses related to the launch of our online businesses in Canada and Europe, and the first stores in Italy and China. We expect our base business to continue to leverage operating expenses as sales grow. However, total operating expenses including growth investments may slightly delever in the second quarter. With regard to occupancy costs, we still expect leverage on positive comps. But given the increased investment in growth initiatives, the amount of leverage may be lower in Q2. We are very pleased with our Q1 performance, and our outlook for the year has improved. That said, our biggest selling quarters are still ahead of us and volatility remains in the economy. We are raising our estimate for full-year earnings per share, in which we now expect to be $1.77 to $1.82 up from our previous guidance of $1.70 to $1.75. This guidance includes the dilutive impact of our growth initiatives and implies double-digit EPS growth. The following full year guidance metrics remain unchanged, depreciation and amortization about 550 million, effective tax rate about 39%, operating margin about 13%, capital expenditures about $575 million, new store openings about 65, store closures about 110 net square footage decline about 3%. In closing, we are pleased with how we executed against our strategies in Q1 and are encouraged by the progress we are making to improve top line across our divisions. Thank you and now I will turn it over to Mark.

Thanks, Sabrina. Operator, that concludes our prepared remarks. We will now open the call up to questions, and everyone, we would appreciate limiting your questions to one per person.

(Operator instructions) Your first question is from the line of Michelle Tan with Goldman Sachs. Michelle Tan – Goldman Sachs: Great, thanks. I was wondering if you could talk a little bit about the inventory growth. It's higher, I think, than the mid-single digit you talked about last quarter. I'm wondering what the driver is and then any color on particular categories that you are investing behind. Thanks.

Yes. Hi, Michelle, I will take that. Let me start with maybe why overall inventories are higher and what we are investing in, and then I will tell you about the delta between what we expected earlier in the year. So as I said in my remarks the most important thing is to remember for context is that, probably unlike most of our competitors we have been cutting inventories for four straight years. So if you look at our 2010 ending inventory up 12, it is actually still down about 30% from like 2005. So from any absolute perspective, the inventories are really still quite lean. The other driver to the increase is the fact that as we are trying to improve sales, have positive comps, our square footage as you know is down. So if you think about the math of that to drive sales and a positive comp when square footage is down, mathematically you are going to want to have more inventory per square foot. So that is the second lever. Then also because of the four years we have been bringing inventory down, with now some momentum behind us, we really want to make sure that we don't disappoint our customers as they are coming back into us. And so we are purposefully investing in some categories to be in better in stock position. So the biggest categories are going to be then, and then for example, our fall launch of black pants is another category that we want to get behind. And we're actually incorporating lessons from last year. As you all might remember, when we launched denim, and that was quite a successful launch. We ended up being probably too lean in hindsight, especially in some styles and in the smaller sizes, you might remember. So when we launched black pants now, we are purposefully going, erring on being on the heavier side, because we don't want to disappoint our customer. We feel fine about that investment because it is not – we're going to stand behind denim and black pants for some time. It is not a highly liable fashion item. So we feel from a risk perspective it is a really good bet to get behind that for the black pants launch. With regard to the delta between where we thought it would end and where it actually ended, that is actually mostly in transit issue that we are just heavier bringing in new goods into May, mostly it is Old Navy new goods versus the in transit heavier. We were pretty lean going into summer last year. So we have quite a bit of fresh goods coming in this year. Michelle Tan – Goldman Sachs: Great. Thanks for the color.

Sure.

Your next question is from the line of Kimberly Greenberger with Citigroup. Kimberly Greenberger – Citigroup: Great. Thank you. Good afternoon. Glenn or Sabrina, could you just remind us what your longer-term operating term margin goals are for the business? And what do you think are the two or three key drivers that get you to that goal over time? Thanks.

Yes. I will start with that Kimberley. We actually do operating margin guidance sort of one year at a time. So we are definitely looking for expansion in 2010 from 2009. We set about 13%. From a longer term perspective, look do we feel that there is anything holding us back from sort of solid mid-teens? No, we don't. We feel like we're on a good path. We're always trying to balance short-term driving towards that with our long term goals of investing in growth initiatives. So we're always going to go for expansion, but with an eye to investing in long-term growth as we do that. So we will give you more explicit guidance one year at a time, but we feel good about eventually getting sort of to mid-teens. And then I will just turn it over to Glenn. The drive is really quick if those expansions are going to come from growth margin. So we have talked about the fact that if we are successful with growing sales, our rod is a primary lever to expanding gross margins. So that is one big lever. The second lever being we are in going to stick in a very disciplined way on operating expenses, and as top line sales improve that over time also has room to leverage.

And one thing I would add is that we have been studying and dissecting the operating margin for Zara, H&M, Uniqlo. And for the most part of the last few years they have been perennial high teens, in some cases low 20s operating margins, and we have been spending a lot of time with the team here. We're not saying that there are economic model should be our economic model. We look at Inditex in 75 countries. You look at H&M in 40 countries operating. And as we put the emphasis in the latest investments we have been making particularly in outlet and in online, which are highly return on sales businesses and high ROIC for the company, I think trying to find the right mix of our portfolio, as we go internationally, and some other decision we want to make based on some lessons we have learnt from them on how they look at their business, how they approach their business. Given our size and our multiple brands and a lot of similarities between us and Inditex, we have been using that as bit of a let us call it an operating margin North Star within our business to say, how far can we go and what is structurally different between our business and some of these three other companies, global companies we admire. Why we couldn't take steps in that direction. So let us put in a number out there, and that is the number we are committing too. But there is a lot of lessons to be learnt by those three other companies. Kimberly Greenberger – Citigroup: Great. Thank you.

Your next question is from the line of Betty Chen with Wedbush Securities. Betty Chen – Wedbush Securities: Thank you. Congratulations on a great quarter. Glenn, you alluded to earlier the volatility in the marketplace. I was wondering if you can give a little bit more color around that and whether that changes your philosophy around some of your value messaging or where you want the team to focus on in terms of achieving the market share goals that you have laid out this year and whether that has changed any of your targets in terms of the amount of market share you would like to regain or the buckets that you'd like to chase after. Thank you.

You are welcome. There is no – there is definitely no change in the market share approach, but the volatility I can't believe for a second it is unique to us. So it is a market dynamic that is going on. What I tried to say in my opening comments is given the amount of years I spent in retail; it is not often that you look at a normalized week. Let us take this week and look at the business that you do certain sales on Tuesday. There is a natural predictable build from Tuesday to Thursday. Some of those predictions and history we have had in our business for many years, you know on some weeks it goes counter intuitive to what we thought was going to happen. So what we have done is recognizing that maybe that is the new normal, maybe that Memorial Day weekend in 2010 is not going to trade the way it did in 2007 because we are in a new environment in terms of how the consumer responds. All we have done, which I think we have a bit of a head start versus other people, maybe we are a little more committed to doing this, is as we lay out by brand and by channel, our marketing and merchandising plans over a 52-week basis, we have worked into those enough flexibility that we can make very quick decisions that we couldn't have made a couple of years ago. And that can be up or down, because the ability for us to now read the business, stay to the course, which is ideal. Any retailer would say, if it was 100% predictable and you could just stick to your plans that is the perfect scenario for all of us. Given the fact that is not reality, we have worked hard here to make sure that all of our plans have enough flexibility to make their decisions very close to key dates, very close to key seasons, and the teams, I am been pretty proud of what they have been able to accomplish. It is a new way of thinking for us in general. Probably not a new way of thinking from some other retailers and other sectors, but definitely I would say it is a new way of thinking for people in specialty apparel. So we have been gaining experience with that, learning lessons the last couple of years, and now the notion of contingency what people ask about all the time is I think what is much more fluid between what our plans are, what options do we have, how close to the actual date we make those decisions. And that is just something we had to adjust to. It is fine. It is – the market is a market, and needed you can fight it or you can adjust to the circumstances we are dealing with and we have chosen to adjust to them to make sure we make good decisions every single week and every single month. Betty Chen – Wedbush Securities: Thank you and best of luck.

Your next question is from the line of Brian Tunick with JP Morgan. Brian Tunick – JP Morgan: Yes, thanks. Hi, I guess Sabrina, I was wondering, on your merchandise margin commentary, I guess, as we go through the year, are some of those comments related to maybe where historical markdown rates might be versus today, or is there something happening from the sourcing side? I'm sure everyone is focusing on that. And then also, does your guidance include the $0.02 benefit from Q1?

Yes, I will take the merch margin, comment first Brian. So really all we are highlighting is the fact that we have made tremendous progress over the last few years on merch margin. If you just look at Q1 alone, we're up almost 600 basis points from just our 2007 merchandise margins. So in this environment you just don't want to overuse that lever. Now we are going to continue to look for opportunities in merch margin. But what we're signaling is given that or sort of it is certainly decade high merch margins, if not all-time high merch margins. That is a bigger opportunity in expanding growth margins, it really comes from rent and occupancy for the simple reason that during this period that we have been really marching up on merch margin, as you all know our rod for the most part until recently has delevered. So in contrast to that merchandise margin expansion, rod has delevered 250 basis points full year 09 compared to full year 2005. So that is quite an opportunity for us. Again, our strategy now given that we have achieved very healthy margins is more around let us sell more units at the healthy margins, get top line sales up, and make sure we start leveraging rods. So that is the primary focus even though we are not giving up on merch margins. So it is the first part. With regard to the guidance, yes we kept our effective tax rate at 39% for the full year. We just got a benefit from these resolutions in Q1. So the way to think about that is it is almost like a timing shift. We are getting more of the benefit in Q1 and the tax rate comes up a little bit in the out quarters. So the full-year guidance definitely incorporates that that is just a timing shift. Brian Tunick – JP Morgan: Sabrina, can I just ask, just trying to get granularity on that, is basically, is it sourcing, or is it markdowns that present more of a challenge as we go through the year?

Well, with regard to our markdowns, we still think we have an opportunity there. We have been doing really well with markdown margin rates. So as we have shifted into some reg rate price selling, more in reg and promo, we just don't have as much pressure on markdowns that we have gotten great markdown margin expansion. That is not necessarily over at all. And with regard to average unit costing, we made a great deal of progress in ’08 and ’09. We have just doing still fine in 2010, although we flagged long ago that definitely would be moderating as the year went on. Brian Tunick – JP Morgan: Terrific. Thanks and good luck to the team.

Thank you.

Your next question is from the line of Jeff Black with Barclays Capital. Jeff Black – Barclays Capital: Hi, thanks, and congrats on the good quarter. And not to harp on it, but it's the first time we've seen inventory rise like this. And I hear what you're saying, but could you give us a better explanation of just how much of this is devoted to the black pant initiative, how much of the build is devoted to clearing up in stocks or bringing up in stocks where you need to, and how much of the build might be devoted to initiatives at Old Navy or the other divisions? Thanks.

I mean, I would say broadly speaking Jeff that probably the bigger chunk of it is devoted to making sure that in key categories that we are going to stand behind for a big chunk of the time that we're in better in stock position. That is the big chunk of it, whether it is Old Navy or whether it is Gap that is really going to be the primary piece of it. Glenn, do you want to talk about in stock.

The other thing we have done Jeff is I think we have looked at our business probably a little differently than we did historically on by brand looking at our customers, and we have spent a lot of time even during the depths of the recession where we were mostly applying very rigorous discipline to inventory management, not quite understanding where the customer was going to settle. Now that we are at least at a different period and maybe sort of we are no longer having to deal with the thought that maybe things are going to get worse. And with a bit of a standstill right now in terms of the economy and the consumer, we did some previous work a year ago which was what are our needs and what are our wants that each one of our customers has, within each one of our brands. And I think when it really came to needs, we really felt and did the analysis that we were not satisfying them. We were under delivering. And if you put your customer management head on only, we were finding that a lot of people were telling us that they were just disappointed when they came in for certain things and we hit some of the categories today that Sabrina talked about. We were just not delivering for them 52 weeks a year. And that is for me in particular having come from a different industry that is very disappointing. Now, I kind of understood it. In parts of 2008 and 2009, when we were making some very big decisions on the fly and trying to figure out exactly where the consumer was going to land, but while the picture is not crystal clear but clearer, we have decided to embark on starting with what categories do we want to really go forward and by brand we want to have gain share and be more dominant, and make sure the inventory goes into those categories first. It just so happens as you look at inventory and inventory is a mix of different products, it just so happens a lot of the categories that we are choosing to be strong within brands, have a high AUC to them. So when you mix – I mean, I'm not saying this is the case, but hypothetically just do the math and say the units were flat, if you said it. If you just do it by dollars you mix out on different AUC categories, you are going to get a natural blip. And those categories we feel strongly about. You have heard Sabrina touch on some of them and you know, denim in particular is a category we want to be very strong in Gap and in Old Navy, and pants, women’s pants, are particular at Banana Republic. So as we figured those things out and make the decisions, we came to the conclusion we are going to make the right call for the customer. We are going to try to minimize the risk to the business, but we are following this path of making sure we don't have any negative aura any more on our brands, as being a brand that maybe cannot deliver on these needs. Jeff Black – Barclays Capital: Got it. Fair enough. Thanks.

Your next question is from the line of Dana Telsey with Telsey Advisory Group. Dana Telsey – Telsey Advisory Group: Good afternoon, with the solid start to the year that you have and what you had mentioned at the beginning of the call, can you expand on some of the key initiatives, for example, on the value proposition messaging? Does that mean adjusted opening price points or more promotions or the stepped-up category strategies? Has that enhanced advertising for each brand? And then is consistency and delivery – what adjustments are being made to speed to market? Thank you.

I will start with the value proposition. What I was trying to articulate is now a little bit of question two. As we have worked hard in the business saying, where are we going to dominate and go after share, because I may have mentioned in previous calls to have an arbitrary strategy, we're going to gain market share means, at least in my case means nothing to me. What we believe we can dominate on, what categories can we use to elevate the overall business by focusing on those. So hence from that you get what is the value proposition on the business, and that is not necessarily strictly looking at opening price points and promotions. It might just be more about frequency, it might be more about how we actually speak to customers, and all the different tools we have to communicate this is great value. I will give you an extreme on the other side. Banana Republic has positioned the affordable luxury business. One of the tools they have just started using, I believe they should really step it up, and I suspect Jack will do this, is inside their store they have a number of products they define every single month as the new price of luxury. So taking items that – I think a lot of our customers, who might go between some luxury brands or department stores, and frequent different types of brands and value positioning within their sort of shopping habits, they are now looking at saying, know what a luxury item costs in key categories. What is the new price for luxury? How do we go out to them and take those buy into them, put a great price on it, and actually show the value the Banana Republic brings. That is on the one side of the scale, if you think about value proposition you might always think about what does that mean to Old Navy in terms of hard nosed aggressive everyday value pricing. That by the way happens to be true. But also across all of our businesses, how do when people come in knowing the customer we're going after, how do we define that value proposition for them knowing that they frequent a number of different brands or different sectors within retail. So we have been working hard on that front. In terms of speed to market, we have been making some steps, probably not enough to my satisfaction over the last 15 to 18 months on the supply chain. From the back door of the store to the – sorry, back door of the vendor to the back door of the store and then upstream from the design decisions from our teams in New York and here in San Francisco all the way to the actual placement of the PO. Over the last six months, we have made a lot more inroads on that front, Old Navy led it 2.5 years ago, and now we are seeing that Gap and Banana Republic and our outlet business and our online business and our global businesses have really adopted the fact that we need to become a lot faster, much more nimble. And some of those benefits we hope to get in the fourth quarter of this year, but there is a bit of mind shift going on that we can do this too working with our existing vendors. And that being fast and moving quicker to decisions and taking out significant amount of weeks from design to the back door of the store, it doesn't mean that your aesthetic has to be fast fashion. That speed is a process. Your aesthetic is your aesthetic. And I believe that everybody here, in fairness to them, not that we didn't have a lot going on in the last couple of years trying to steward the business to where it is today, but now that we're in a different place, we believe we can take on this initiative and work it into each one of our brands over the next number of months and years. Dana Telsey – Telsey Advisory Group: Thank you.

Your next question is from the line of Jeff Klinefelter with Piper Jaffray. Jeff Klinefelter – Piper Jaffray: Yes, thank you. Well, in terms of store rationalization work and consolidation that you're doing, you articulated this strategy a couple of years ago very clearly, and have been making some progress. It sounds like you'll be accelerating that progress going forward. And I was just curious if you have any examples to share, evidence of the productivity improvements and how this is working as you go through the various formats nationally.

I would say the biggest improvement we have made in the last 12 months is now that we know what our new prototypes look like. Because prior to this Jeff when I explained it, it was sort of a real estate strategy drove the decision from the 40 million square feet, that same as 40 million square feet we talked about two years ago, and how we're going to rationalize it in terms of what is the right number of stores per market to cover the target consumer, and what are the proto-typical square footages we want in each one of our brands. What we weren’t talking about as much a few years ago is now we introduced these new prototypes. So I would say the change for this year is that as the real estate team, and you are right to say, I have actually been impressed. They have gained quite a bit of traction. Now the wind has been at our back given how we are, our size, our multiple brands and the fact that there is clearly an excess of square footage out there when it comes to landlords and different types of storefronts that we can consider for our brands, and there is less and less new entries and new retailers and competitors who are announcing massive investments in their store model and their capital programs. We are well positioned position, and I have seen great evidence particularly at Old Navy, where we have gone out, we have either relocated across the street or have been able to negotiate a reduction in space, get great terms from landlords in terms of the capital costs, and get great terms in terms of putting our new model into that store. I think part of that has been that we are one of the few people, not the only company, we are one of the few people right now who are willing to put capital because we have a plan, we have a strategy, we have tested these new prototypes, and we know we got the return we need, and we are now stepping up as you saw with the Old Navy business, stepping up the amount of remodels we are doing. Given that, that makes us pretty unique in the marketplace. We have been able to use that not only to the betterment of the store and for our customers and for growing our market share, but using that as a leverage point with landlords. So I think that is the new piece that has quite led the real estate team to start achieving a greater level of success in 2010 than they had in 2009. Jeff Klinefelter – Piper Jaffray: So would you say that you see this accelerating in the next two or three years versus the last two in terms of net reductions of the footprint?

You know, Jeff that is a mixed bag. I would say to you the following. Definitely, I would say there was an acceleration this year I'm seeing in terms of us achieving and making further inroads into our real estate strategy. Now that doesn't only mean reductions. Some of our real estate strategy decisions are not only based on that, some are based on consolidations, but I am looking at it and saying in 2010 and 2011, we're really well positioned. I would say better than I would have told you two years ago to actually execute on it. I'm hoping to your point to be able to speed it up by at least a year, but time will tell. I think just keep giving you an update on it, what I'm hoping with the inroads I have seen made so far this year that will bode well for an acceleration of it. It is a little too soon to tell. Jeff Klinefelter – Piper Jaffray: Okay, thank you.

(Operator instructions) Your next question is from the line of Edward Yruma with KeyBanc Capital Markets. Edward Yruma – KeyBanc Capital Markets: Hi, thanks very much, and congratulations on the strong quarter. You were very aggressive with share repurchases in the quarter. I don't know if they out clipped free cash just by a touch in the quarter. How should we think about targeted cash levels and your interest in doing share repurchases going forward? Thanks.

I will take that. So, yes, we absolutely – there is no change at all in our commitment, in our principle around cash distribution. So as you know we target about $1.5 billion of cash we want to keep on the balance sheet. We were successful in generating a lot of free cash flow during 2009, and we in terms of our new authorization of $1 billion that we announced a few years ago or earlier this year to continue our repurchase program. So we are pleased that we did almost $300 million in Q1 and we have every intention of continuing throughout the year. Edward Yruma – KeyBanc Capital Markets: Thank you.

Your next question is from the line of Michelle Clark with Morgan Stanley. Michelle Clark – Morgan Stanley: Thank you. Good evening. Sabrina, a quick one for you, and then a follow up for Glenn, Sabrina can you quantify for us the in-transit impact to inventory at the end of Q1? And then Glenn, you had mentioned in your prepared remarks the Old Navy assortment getting a little bit too broad and then needing to tighten that up. Can you just give us some more color there in terms of what specifically you mean and then the opportunity to go forward? Thank you.

Yes, I think it is fair to say Michelle that the in-transit really is the primary overage from where we had thought we would be. So it is definitely worth a couple of points of that inventory per square foot number, and again it is driven by Old Navy in transit, them wanting to get more fresh goods into the stores sooner. That is where sort of the overage came in.

And on Old Navy what I would say Michelle is that Tom and the team have been pursuing for the better part of the last year, adding some new businesses into the four walls of Old Navy. So, you have what is known as a Go-Go [ph] business, Women's Active, followed by our Men’s Active business known as Rec Tech. We’ve been putting in a lot more non-apparel led by jewelry, and simultaneous to the – and that there is a number of other – I’d say now there is the licensing business we put in and kids and baby. There are a lot of new businesses and categories as Tom has been executing on this category management plans and strategies simultaneously to that, because after all it is only one store and one set of square footage. Tom was planning to reduce some of the CC counts in some other categories. So, we are looking at it and going. Well, those are good categories for us. We’re going to be in them. We’re going to – it’s more of a complementary category than a dominant category and those two plans did not line up at the same time, which is unfortunate. Tom is aware of it. So it was bit of a maybe a six month overlap that Tom is now dealing with. If you went into our stores in February, March, and April I think the people who are close to our business have probably would have been evident, but I suspect Nancy and Tom based on the work they’ve done will have that completely corrected by July. It’s not a big problem. It’s just that is tough for some of the key categories that you put it in, new ones or ones we’ve agreed are part of the future. We do want the dominant on tough for them to shine and tough for them to actually get the space they need to gain market share against our identified competition. If these other categories that should be reduced in space a little bit be given a little less prominent position, the CC Count doesn’t come down on those correspondingly. So you know, I would say a big deal, no. A disappointment, yes, but one that is easy to rectify and come July I think we’ll be in exactly the place we want to be. Michelle Clark – Morgan Stanley: Great, thank you.

Your next question is from the line of Barbara Wyckoff of Jesup & Lamont Securities. Barbara Wyckoff – Jesup & Lamont Securities: Hi, everyone. I've been paying a lot of attention to the pant and jeans categories in Gap. Are you doing anything to jump-start the tops business? And by building bottoms inventory and intensification, will you throw off your historical balance of tops and bottoms?

No that’s – it’s almost like you’re in a meeting with us yesterday. I completely agree. I think the team really understands that. I would say what happened was when we relaunched denim in August, there was a lot of effort between Patrick and Martha [ph] and the team to really got that off the ground, and there is a big focus on it. And I may have mentioned this at a previous call, I don’t remember but if I didn’t what I probably should have said was that that focus, there was a disproportionate amount of share of mind that went through it and I get that, a disproportionate amount of marketing dollars that went towards launching that, which again I support and understand, but the complementary work on the tops which and therefore the split of business, the proportionality of sales between tops and bottoms is something that’s critical for the overall store to be successful. And that probably got a little lower than Martha is comfortable with in terms of the sales at the end of the day. I think there is a little bit of work being done right now in our stores; we go and see the new floral products that we have, everything else. I think that that was the beginning of them attempting to correct that split inside the business, but most importantly to Michelle’s question earlier as we have become more nimble and become faster, the only thing now is that Gap under Pam Wallack’s leadership has been able to move very quickly on a speed process on a separate pipeline to bring in some tops much faster. I just heard the other day this means that we will just add that come August when the denim anniversary happens that our marketing campaign hits on July 27 to talk about denim from last year’s anniversary and take it to the next level, we will see this time a much better presentation and a mix of tops and bottoms inside the store. Barbara Wyckoff – Jesup & Lamont Securities: Great, looking forward to it. Thank you.

Your next question is from the line of Marni Shapiro with The Retail Tracker. Marni Shapiro – The Retail Tracker: Hi guys. Congratulations on a great first quarter and good luck with summer. You've been doing some very interesting things marketing wise to your cardholders recently. I got a mailer every Wednesday, Gap loves Wednesday, and I know you are running a 10% off if you use your card. So I'm curious if you have increased the use, to – promotions to the cardholders. If you have changed these up, are they working? And is it specifically targeted – most of them seem to work in-store only. Is that purposefully, or are you running separate ones for online?

I would say Marni that there are times, there is a cross called channel deal with our private-label credit card. That does happen but you’re right. Your observation is correct. I’d say that for the most part they are independent decisions, and a lot of them are focused inside the store. I mean, I’m sure you know this that we have all the data that shows that you know, private label credit card purchaser not only in terms of their frequency but their average trends trumps a non-cardholder by a significant amount, and us along with our credit card partner, using their information and their muscle and their experience in some cases their marketing dollars, supported by the work we do internally, we’ve been probably shifting that a little bit at all brands. To speak to that cardholder specifically and what we do find is this without – we want as the same politics we won’t have a big tent. We wanted to invite everybody inside to our stores and try to get new customers, but there is two sides to marketing. There is the customer acquisition and then there is the strength in your strengths, and I think we probably have shifted a little more money towards holding on to the customers we have and trying to get a larger share of wallet from them, as opposed to going after new customers. It’s not a big shift but given numbers probably a 10% shift in our marketing efforts have gone towards that. It’s probably why you’ve seen a step up to you if you’re a cardholder; you have a Gap, Old Navy, Banana card. We’re speaking to it at a little more frequency, and getting you to come in, probably giving a little bit of a heads-up in advance of going to markdowns probably given you a bit of a advance notice when new products comes in that they should come in first and giving you in this case 10% a little added incentive to drop by our stores. So I definitely, I think it’s the right strategy for now. There may be a time that we choose to switch back to an equilibrium or to put more money to customer acquisition, but right now we’ve been trying to get the bigger share of wallet of existing customers. Marni Shapiro – The Retail Tracker: I, for one, think they are a great and they're a nice surprise when you receive them, so congratulations and good luck.

Right. Thanks Marni.

Thanks.

Your next question is from the line of Evren Kopelman with Wells Fargo Securities. Evren Kopelman – Wells Fargo Securities: Great, thank you. I had a question on the rod, given it's going to be a significant component of the margin improvement going forward. Can you talk about where – maybe you don't want to talk about where it is as a percent of sales. But compared to history, where it was this kind of the low level when it was a percent of sales, where are we? How many – is it several hundred basis points? I'm trying to figure out what is the opportunity, where can that go?

Yes, one data point Evren is this comparison to 2005 where we have you know, deleveraged since then by about 250 basis points. So we have a really, really nice runway in terms of rent and occupancy, and as you know, you know, not only did that come from increasing our sales per square foot, getting our productivity back, increasing top line but also all of this work that the real estate team has been doing during the recession to really capture the opportunities, lock in some favorable rent, do some good deals. I mean we really feel like we’re positioning ourselves well and shrinking this square footage, getting rid of unproductive rent, locking in new favorable long-term rent. That combined with an increase in sales really gives us this nice opportunity with you know, we definitely would like to head back toward those levels of leverage that we enjoyed just four years ago. Evren Kopelman – Wells Fargo Securities: Great, thank you.

Your next question is from the line of Paul Lejuez with Credit Suisse. Paul Lejuez – Credit Suisse: Hi thanks. A question on the remodels at Old Navy, Glenn what is your goal there? What kind of lift are you looking to get out of these remodels? And Sabrina, can you maybe share with us what sort of accelerated depression might have been included in that rod line this past quarter? Thanks.

Here is what I can tell you Paul that you know, traditionally remodels for many retailers I think that some of them are just barely successful in some cases, people do it for brand enhancement and they don’t necessarily do it because it’s accretive to return on invested capital. As you know, last year we did five and they went quite well. Then we decided to really move forward and get to 50 very quickly, and those 50 for us to make them turn around and do close to 200 in the first half of 2010 should probably indicate to you that from my experience and definitely from Gap Inc.’s history that we had a bit of a tiger by the tail, and you know, on fairness to the remodel, part of it is we hadn’t done anything to the stores in 15 years. So when you do go in and you make quite a significant change, you’ve seen those stores. It’s quite a significant look and feel; the merchandise looks a lot different. It’s – I guess I said in a call – maybe a number of calls ago that we’re probably two or three generations behind on Old Navy. So when you make this big shift from no effect to the look and feel and environment for 15 years and then do it, customers have really responded well and that tends to be a customer that I think actually really likes that and feels special about it, and really makes that store. I mean, you go in to some of our defined competitors in the value business and come into our store; it is a completely different feel. It’s one of our advantages. It’s the personality of the brand, which I think we lost. I mean, I was in two years ago to a bunch of Cosco stores, and they looked way better than the Old Navy store, and that’s a game we can’t win for an environment perspective. Now I think we have regained our advantage. So I think we feel actually pretty good of what Tom and the team have done. They’ve been smart. They’ve been strategic. The execution and the opening by the field leadership team at Old Navy have done a phenomenal job. I’m out this weekend in stores with that team and I know there’s another 50 or 60 that are having their grand openings this weekend. So a really good program so far that we’re invigorated about.

And with regard the amounts, we haven’t specifically quantified them Paul but they definitely were occurring in Q1. You actually get a ramp-up in Q2, even though we did about 100 in Q1, as Glenn mentioned most of the stores were opened at the very end of the quarter. So you do get some of the new depreciation of all the new fixturing and everything coming into Q2 that’s going to impact Q2 rod. So both on the SG&A and also the SG&A preopening cost or not preopening, but marketing cost for the grand reopenings are going to fall into Q2 more than Q1 for the bulk of the stores. That’s why even though numerically we got 100 done in Q1, 18 more remodels to do in Q2, more of the expense falls both on the rod line and the SG&A line into Q2. And then of course, you know, it’s a one-time fall off in the second half. Paul Lejuez – Credit Suisse: Thanks guys. Good luck.

Thanks.

Your next question is from the line of John Morris with Bank of Montreal. John Morris – Bank of Montreal: Thanks. My congratulations I want to add as well. Unless I missed it, I wanted to just get caught up with Sabrina on the SG&A. You guys were pretty well controlled in the quarter on the SG&A line, and I'm thinking from a full-year basis the year – full-year guidance numbers assume the same kind of order of magnitude of SG&A, up about mid-single digits? And within that, your marketing plan, the spend there – has that been the same for the full year, particularly as it relates to advertising spend?

Yes, overall John our plan on SG&A is we’re going to remain very disciplined in our base businesses, and we intend to leverage when we’re successful at increasing our sales. Nominal dollars of course are going to go up because as you know about half of all of our SG&A is store related and a big chunk of that is variable to sales, but just as you saw in Q1 even though dollars went up $41 million releverage, and what we’re flagging is the timing of these investments and growth may change quarter-to-quarter the profile, but overall we are looking to leverage SG&A on our base businesses, and overall do very well and tightly for the full year even with our growth initiatives, this is the goal. With regard to marketing, we haven’t been specific about the back half. Our plans are actually still being laid out certainly for the fourth quarter and somewhat for the third quarter. For the second quarter I’d say directionally it’s probably going to feel like the first quarter. So we’re going to continue to invest incrementally in Old Navy driven primarily by the grand reopening of the remodels, where we do radio and we do some specific spend behind them, and then also more investment behind Athleta catalogs to get them out to more new customers. And then Piperlime you may have noticed we’re doing a lot more print in Piperlime to bring new customers onto the website. John Morris – Bank of Montreal: Glenn, are you happy with the marketing direction? Any change in philosophy, or has it been pretty consistent all the way through?

No, I think John it all comes down to keeping it fresh and obviously, I am very happy with the creative platform that Tom and his team put forward last March. But having said that we have a brand-new CMO joining us in a few weeks and she is highly talented with a lot of experience. I believe Amy is going to come in and probably not change anything with the platform, but maybe take it to the next level. It has been a little bit of innovative ideas coming out from our ad agency and the team that is currently there, which is also a highly talented team that currently does the work. So I’m looking forward to Amy coming in and taking it to the next level. I’d say Gap that they are and they will be taking a formula they put forward for 1969, which was not only the fact that it was a much more modern approach to marketing. I think that it had definitely a more of a sexy feel to it and what they did in the 1969 launch. They’re using the medium to use, the way they really totally leveraged our store and our store team. You’re going to see them do that much more going forward. We probably arguably should have brought that formula to the springs marketing, we didn’t, but when you compare them to holiday work we did versus the 1969 work we did, the 1969 work which was product specific in key categories much more relevant to the consumers. Maybe I would argue to the lower end of our 25 to 35-year-old range. I think that that’s a formula we’re going to see going forward. You’ll definitely see a version of that for the anniversary of 1969 on July 27th and you’ll definitely see, and I saw it last week, a really cool way of doing it for black pants, which will be marketed at the end of August of this year. Banana Republic, I think that you know, Jack and Catherine [ph] and her team have done a great job on the marketing there. You know, my overall feeling with them is that they’re putting more money in store which matters for that business, but in general you heard my opening comments I’m still looking for a step up. We have a strategic advantage in the amount of marketing we spend per year, and I want to make sure that we make every dollar count. John Morris – Bank of Montreal: Great, thanks. Good luck.

Operator, so we have time for just one last question.

Yes sir. Your final question is from the line of Lorraine Hutchinson with Banc of America/Merrill Lynch. Lorraine Hutchinson – Banc of America/Merrill Lynch: Thank you, good afternoon. Glenn, have you had the opportunity to test some of the new black pant offerings and other low risk categories that you are talking about really stepping up the investment in? And then also, are you considering television for the relaunch of 1969 and the black pants initiative?

There’ll definitely be no television. I was just saying to John earlier that the formula on how we did, I’d say a big investment in the stores and the windows inside the stores, giving actual funds to our stores to go out and get people to come in and get the trial going adding more labor, creating denim experts like we did in 1969, and our field team did an excellent job of that. You’re going to see plus then the marketing, the external marketing to draw attention, social media, you know, the fashion magazines. This formula we worked out, it’s going to be tweaked obviously this black pant is a different purchase, but I think the team has taken that overall framework and applied it to black pants. Therefore there’ll be no television. The testing, you know, what Lorraine sometimes those things we’re testing, and I agree with that. Sometimes you just got to say you know, what we believe in this, and the test for me that was important is Patrick and Mark and Pam had a number of very important fashion editors to New York about 2 to 3 weeks ago, and my feedback that I got independently through a few other people was the same sort of feedback we received a year earlier when we did the 1965 denim. We brought them in and showed it to them and they tried it on. It was equal to the feedback we got on the black pant we launched. So that made me feel very good, and look I’m a big believer it is a big business, and sometimes you got test concepts and sometimes you just got to say you know, what that’s strategically correct. You’ve done it before. We’re going to it again. Let us just put it out there and make it happen. Lorraine Hutchinson – Banc of America/Merrill Lynch: Thank you.

So, thanks everyone for joining us on the call today. As a reminder, our earnings press release which is available on gapinc.com contains a recap of the Q1 results and the forward-looking guidance that was included in Sabrina’s remarks and as always, the investor relations team will be available after the call for further questions. Thank you.

Thank you for joining today’s conference call. You may now disconnect.