Katrina O'Connell Glenn K. Murphy - Chairman and Chief Executive Officer Sabrina L. Simmons - Chief Financial Officer, Executive Vice President of Finance and Principal Accounting Officer

Kimberly C. Greenberger - Morgan Stanley, Research Division Adrienne Tennant - Janney Montgomery Scott LLC, Research Division John D. Morris - BMO Capital Markets U.S. Evren Dogan Kopelman - Wells Fargo Securities, LLC, Research Division Janet Kloppenburg Randal J. Konik - Jefferies & Company, Inc., Research Division Paul Lejuez - Nomura Securities Co. Ltd., Research Division Lorraine Maikis Hutchinson - BofA Merrill Lynch, Research Division Jeffrey P. Klinefelter - Piper Jaffray Companies, Research Division Brian J. Tunick - JP Morgan Chase & Co, Research Division Betty Y. Chen - Wedbush Securities Inc., Research Division Dana Lauren Telsey - Telsey Advisory Group LLC Laura A. Champine - Canaccord Genuity, Research Division

Good afternoon, ladies and gentlemen. My name is Ashley, and I will be your conference operator today. At this time, I would like to welcome everyone to the Gap Inc. First Quarter 2012 Conference Call. [Operator Instructions] I would now like to introduce your host, Katrina O'Connell, Vice President of Investor Relations. Katrina O'Connell: Good afternoon, everyone. Welcome to Gap Inc.'s First Quarter 2012 Earnings Conference Call. For those of you participating in the webcast, please turn to Slides 2 and 3. I'd like to remind you that the information made available on this webcast and conference call contains forward-looking statements. For information on factors that could cause our actual results to differ materially from the forward-looking statements, as well as reconciliations of measures we're required to reconcile to GAAP financial measures, please refer to today's press release, as well as our most recent annual report on Form 10-K and our most recent quarterly report on Form 10-Q all of which are available on gapinc.com. These forward-looking statements are based on information as of May 17, 2012, and we assume no obligation to publicly update or revise our forward-looking statements. Joining us on the call today are Chairman and CEO, Glenn Murphy; and Executive Vice President and CFO, Sabrina Simmons. Now I'd like to turn the call over to Glenn. Glenn K. Murphy: Thank you, Katrina. Before I hand it over to Sabrina to take you through the highlights from the first quarter, I've got some general comments about Q1. First off, as I said in the release, we were pleased with our performance in the first quarter. I think domestically in particular, if you look at our comp performance in each one of our large brands, Old Navy, Gap and Banana Republic, we were pleased with that performance and our product teams really stepped up in the first quarter. We've been pretty consistent since our call in February, saying that last fall we sat down as a business and took some corrective measures in product and that some of the areas we're making investments in, which I will touch on at the end of these comments. I think color was a trend that everybody took advantage. I think our team did a very good job with that. Then generally our product teams really stepped up nicely in this first quarter. We also had some great feedback from our customers on our collaboration with Diane von Furstenberg, a Gap brand doing DVF for Kids, traffic driver, great execution in the stores and marketing and I think that was very good for Gap brand. And for Banana Republic to tie itself in a partnership with Mad Men, one of the top properties, definitely here in the United States was very good for their business. Again, a lot of customer increased, great sell-through in the product, and amazing feedback. And lastly, our online business continued to be very strong. Coming off of a 20% increase in 2011, our online business delivered an 18% increase in the first quarter, and we're making a lot of smart investments in mobile technology, online media and a whole bunch of different areas because that's part of our business that we're known for. We have, in my opinion, a competitive advantage, and we continue to invest to make sure that we're actually out there gaining market share on the online business. Let me switch gears and talk about our growth initiatives and their performance. I'll just highlight a few of them in the first quarter. Our franchise business added 3 new markets in the first quarter. And more importantly, they added 22 stores, that was really strong performance by that team. Our China business added 7 new stores, and a New Market in Wuhan, and the China business is on track to doing the 30 stores we committed to get done in 2012 and good performance coming off of that team. I happen to be in Japan, 4 weeks ago. And saw the store coming together for Old Navy in a market just outside of Tokyo. A beautiful store, great premarketing, good brand awareness for Old Navy, good initial feedback from customers. So we're very much looking forward to that opening, which will be later this quarter. And Athleta is clearly on track to add 25 stores. We like the performance of the stores in 2011. We're seeing so far in 2012. A new marketing platform I talked about in the February conference call. So that's coming together nicely, and we're looking forward to reporting on even more progress when it comes to real estate strategy for Athleta. We talked on the February call about investments. I just thought I’d spend a minute on that, 2 areas in particular, investments in our product and investments in marketing. On the product front, our creative advisors are working very well with the design teams at Gap brand with the Tracy Gardner and Old Navy with Jill Stanton. Now their work in working alongside of the design teams in each one of those brands, won't be seen until holiday, but very good feedback on the contribution they're making so far. Now more importantly in the first quarter, there were some key categories that we already put some investment into, for our customers to notice and for us to get a much higher sell-through inside of our stores. So just a couple of examples. Old Navy completely redesigned their whole T-shirt business, and that launched in the first quarter and it was quite a contributor to Old Navy's performance in Q1. And Gap brand put money into their bottoms business and their performance on colored bottoms and colored denim. That was also a big contributor to their performance in the first quarter. So as I mentioned before, we're looking at key categories where we can have a competitive point of differentiation. We will make targeted investments in order to drive our business. Now the marketing front, we did come into the new year with -- for the most part, 5 new creative platforms. Now Old Navy's was tweaked from November of 2011. But for the most part, 5 new creative platforms. The Gap platform, which I assume everybody has seen, it was a global campaign of Be Bright. And that campaign very well-received from customers. Good execution in the windows, in-store, digital execution, strong. I felt very good about what the team did and the reaction we got from customers and then the overall performance of the business. And I really thought the Banana Republic did a very nice job in the first quarter on their marketing platform, which is focused on new work. That's just perfect for that brand and I thought the mediums they used to express that creativity, mostly on direct mail, really came across strongly and got great feedback from their customers. Last month, we announced the hiring of Stefan Larsson from H&M to become the new Global Brand President for Old Navy. Now Stefan won't be joining us until the month of October, but everybody here is very excited about what he's going to bring to the business. He's had this phenomenal experience in product, in real estate, in sourcing and inventory management but most importantly he's a very global executive. Old Navy's #1 priority is to continue this kind of performance in its domestic business. But with the opening of the store in Japan and future openings in 2013, Stefan's experience globally will be very helpful to where Old Navy is at this point of their revolution. So in closing, it's nice to get off to a good start, doing $0.47 in EPS. I mean, nice comp performance in the first quarter, 6% total growth. All the numbers that you see in the press release, we feel good about that. But as we've said many times, we have lots of work to do inside the business. While it's nice to celebrate this small win in the first quarter, it's a long year. We have lots of initiatives in place. We need to execute them. But we're committed to making that happen. So with all that said, let me pass on to Sabrina who will take you through the financial highlights for the first quarter. Sabrina? Sabrina L. Simmons: Thank you, Glenn. Good afternoon, everyone. We're pleased with our first quarter performance as it represents meaningful progress against our 2012 priorities, including improving sales, reinvesting in our business and growing earnings per share. Here are some highlights for the quarter. Net sales were up 6%. Comparable sales were up 4% and all North American divisions posted positive comps for the quarter. Despite increased average unit costs, gross margins were only down 20 basis points. And finally, our earnings per share grew 18%. Please turn to Slide 4 for our earnings recap. In the first quarter, operating income was up $9 million or 2%. Net earnings were flat at $233 million and earnings per share were $0.47, up from $0.40 last year. This includes about $0.01 of benefit related to favorable reassessment of tax positions in the quarter. Turning to Slide 5, sales performance. First quarter total sales was $3.5 billion, up 6%, with comp sales up 4%. Our new stores and franchise business both contributed to our spread of 2 points. Total sales and comps by division are listed in our press release. Turning to Slide 6, gross profits. Gross profit dollars grew by 5% to $1.4 billion. First quarter gross margin was down 20 basis points to 39.4%. While average unit retail continued to be up over last year. Our merchandise margins were down 150 basis points, driven by higher average unit costs. Rent and occupancy leveraged 130 basis points. As a reminder, the amount of leverage in any given quarter is dependent on a number of factors. Some examples include the timing of store openings and closures, landlord settlements and rent escalation base. Therefore, although we remain confident that we will leverage rent and occupancy on a positive comp, we would caution against extrapolating this magnitude of leverage. Turning to inventory on Slide 7. As mentioned in our April sales press release, inventory per store in terms of dollars was down 7% on last year's up 10%. Please turn to Slide 8 for operating expenses. We noted on last quarter's call that we plan to invest more in our domestic businesses in 2012 and highlighted that it's unlikely we will leverage operating expenses. In line with that framework, first quarter total operating expenses were $980 million, up $62 million from the prior year, due primarily to investments in marketing and store payroll. As a percent of sales, total expenses deleveraged by 20 basis points. Marketing expenses grew $20 million to $139 million, driven by increases in CRM and Gap brand marketing. Please turn to Slide 9 for capital expenditures and store counts. First quarter capital expenditures were $148 million. With regard to company-operated stores, we closed 10 stores on a net basis and ended the quarter with 3,026 stores. Net square footage was down 2% compared to Q1 2011. Store count and square footage by division are listed in our press release. Regarding cash and share counts on Slide 10. For the quarter, free cash flow was an inflow of $216 million compared with an inflow of $104 million last year. We ended the first quarter with about $2 billion in cash and short-term investment. On our Q4 earnings call, we announced a new $1 billion share repurchase authorization and guided that our level of share repurchase in 2012 would be less than 2011. Consistent with that statement, our Q1 share repurchases were minimal, and we ended the quarter with 491 million shares outstanding. And now I'd like to discuss our outlook for the rest of the year. Please turn to Slide 11. We're certainly pleased with our progress as reflected in our Q1 performance. That said, there are several factors to consider regarding our full year outlook. First, as I just noted, share repurchases were minimal during the quarter, and therefore, our weighted average share count was impacted not only for the first quarter but likely for the full year. Second, external factors, including weather, were very favorable in the first quarter. And finally, we believe it's important to remain measured in our outlook given that our biggest selling seasons are still ahead of us. Taking these important factors into account, we are raising our estimate for full year earnings per share, which includes the 53rd week to $1.78 to $1.83. As a reminder, our framework for the year, while unchanged from Q4, includes the following: it's our objective to continue to drive modest top line growth with the stabilization of our base business and a continuation of our global growth initiatives. At the same time, we plan to deliver healthy merchandise margin through better product acceptance, inventory discipline and improved average unit cost. While we're confident that our average unit cost on like-for-like product will improve in the second half of 2012, as we noted on our last earnings call, this benefit will be partially offset by select reinvestments into product quality as well as changes in the mix of our product assortments. With regard to occupancy costs, we continue to expect leverage on positive comps. But as I just mentioned, we would caution against extrapolating the magnitude of leverage in the first quarter. Moving on to operating expenses. We expect to continue to prudently invest more in our domestic businesses and our growth initiative. Therefore, we do not expect operating expense to leverage for the full year. In addition to continued International growth, areas of investment this year include global IT, e-commerce, store payroll and marketing. Specifically, we expect the increase in marketing in the second quarter to be at least as large as it was in the first quarter. With regard to inventory, at the end of Q2, inventory dollars per store are expected to be relatively flat to last year. Regarding share repurchases. Our philosophy regarding the distribution of excess cash to shareholders has not changed. However, as a reminder, our approach to share repurchases is highly opportunistic. Given that we repurchased over 200 million shares in 2010 and 2011 at an average price of $19.60, we are comfortable with the slower pace of repurchase in 2012. The following full year guidance metrics remain substantially unchanged. Operating margin about 10%. Net square footage, down by about 1%. Company-operated stores, about 130 openings and about 115 closures, both of which are net of repositions. Capital expenditures about $600 million. Depreciation and amortization about $475 million. Effective tax rate about 39.5%. In closing, we're pleased with about how we executed against our strategies in Q1 and are focused on delivering on our goals for the remainder of the year. Thank you. Now I'll turn it back over to Katrina. Katrina O'Connell: Thank you, Sabrina. That concludes our prepared remarks. Now we'll open up the call to questions. [Operator Instructions] Thank you.

[Operator Instructions] Our first question comes from the line of Kimberly Greenberger with Morgan Stanley. Kimberly C. Greenberger - Morgan Stanley, Research Division: Glenn, and Sabrina, I wanted to just ask about the outlook here for the rest of the year. We saw just an incredibly good first quarter. It sounds like there's a little more caution as you look out to the second, third, fourth quarter of the year. Is this just trying to maintain expectations as -- and let the results kind of speak for themselves? Or are there some benefits perhaps in the first quarter that you're worried won't repeat in the rest of the year? We're just trying to square the great performance we saw so far this year with what seems to be a more conservative outlook for the rest of the year. Sabrina L. Simmons: Yes, great question, Kimberly. So I guess I'm going to start by saying we actually feel really confident internally about the progress we're making. So I think that's the important headline. That said, we are only finishing here the first quarter and entering the second. So as I said in my remarks, we have 3 big important quarters ahead of us. So we really want to just remain measured in our outlook. In addition to that, I'm just going to do 3 quick reminders on themes that we outlined since the Q4 earnings call that are still true, which is -- although we feel good about our average unit costing in the back half, we are reinvesting some of that into quality and assortment mix decisions that obviously, we feel good about. But it’s the AUR piece that will need to play out as the year goes on. Second reminder, is that if our momentum continues as we had in the first quarter, we definitely plan on continuing investments in these areas like store payroll, store-related expense and marketing. So that's something we'd like to do after 4 years of really, really tight expense discipline. And then finally, and this is a really important point, as I said, we are committed to distributing excess cash. But we've always been very opportunistic about our program. And so I think it's going to be really important to take into account the fact that the share repurchases in the first quarter were minimal, and that is going to really impact sort of how everyone models out their weighted average shares. Obviously, the more back half weighted share repurchase becomes, the less impact it's going to have on the share count for the year.

Your next question comes from Adrienne Tennant with Janney Capital Markets. Adrienne Tennant - Janney Montgomery Scott LLC, Research Division: Glenn or Sabrina, can you talk about your average unit cost trajectory? You probably have thought well through third quarter and into holiday. We know that the fall was up 20%. So can you give us any color as to do you get half of that back? Do you reinvest half? Any sort of color there would be very helpful. And then kind of on the same path, really the same question is inventory unit plans. Sabrina L. Simmons: Yes. So I'll start that, Adrienne. And last year, just to be clear, not fall wasn't up 20%, we said our entire back half was up about 20%. And that included holiday, which was actually the peak, costing was in holiday last year. So that just a -- a nuance that I just wanted to make sure we're grounded on. With regards to this year, you're right. We're not done with the second half. We're not done with holiday yet. But we feel good about our costing. I'm not going to quantify numbers this year, it was highly unusual for us to ever do that. Last year, we did that because the escalation was so unprecedented and meaningful to our P&L. And so we're not going to get into precise numbers. But again, we do feel good about that, which is why we said we feel confident about healthier margins this year. But we will be reinvesting some of that in important key categories. We're not at reinvesting everywhere. It's going to be in categories that are important assets to the brand like suiting at Banana Republic, denim at Gap brand, et cetera. And then there's important mix shift. So a good example of that would be investing in more Gap fit, the athletic pants, putting it in more stores. And that's a higher AUC than things like panties that it might be replacing. So those are examples, directionally, of where we're headed. Adrienne Tennant - Janney Montgomery Scott LLC, Research Division: Fair enough. Just directionally, units, would they be up? Sabrina L. Simmons: Oh, thanks. And then on units, as the pressure on AUC eases, it will depend on divisions but I'm going to use the Old Navy as an example since they had the steepest escalation last year. We pulled back the most units out of Old Navy and that's a value business. So of course, we'd like to get to a more normalized level of kind of units per store there. We're going to watch our total inventory dollars but as AUC comes down, we would like to add more units there, yes. Adrienne Tennant - Janney Montgomery Scott LLC, Research Division: Okay. So up year-on-year. Sabrina L. Simmons: Yes.

Your next question comes from the line of John Morris with BMO Capital Markets. John D. Morris - BMO Capital Markets U.S.: Inventory, Sabrina, if you could talk a little bit about kind of where that came in. It looks like, maybe it was a little bit below where you were. You're chasing -- how do you feel about it, what are your thoughts on a go-forward basis? And then I think may be for Glenn, talking a little bit about the product, both at Gap domestic and also at Old Navy. At Gap domestic, we're hearing a lot of good things about the bottoms business. Can you talk to us a little bit about the tops, what you're seeing there at Gap domestic and in Old Navy, a little bit about where that strength is coming from in terms of the product. Sabrina L. Simmons: So I'll start quickly on inventory. Just color -- the context is we were up 10% last year, so down 7% this year. So overall, on the 2-year basis, we feel like that's a good place. As we enter Q2 -- we had a nice Q1. If we had to call out any one division, I'd say maybe we're a little bit lean in Old Navy but we have healthy receipts coming in. We feel good about inventory overall and we guided to flat dollars per store at the end of the quarter. Glenn K. Murphy: And John, on the product, without getting into too much detail, what I would say about Gap, it's multifaceted that we continue to be very pleased with our Kids and Baby business, and the -- some of the investments that Sabrina was talking about earlier on product, that can be definitely seen as you get into spring, summer and beyond in our Baby business, which is clearly a competitive advantage and an asset for the company. So I'd say that business continues to be strong. It's being reference to the body business led by the new GapBodyFit business. That was strong in the quarter. So but -- bottoms was likely very easy for people to start asking that question. It was our whole campaign in spring under the Be Bright platform was about bottoms, whether it was woven bottoms, and twill, or whether it was the denim which we did in March. That was a good business for everybody at Gap and at Old Navy as well. So I'd say Gap was fairly nicely spread across all of their different businesses. It wasn't strictly a 5 comp on the quarter led by colored bottoms in women's. That business did well for us, as I'm sure did well for a lot of other retailers but it was really spread nicely across the business, which is encouraging, because you don't want to have a one-dimensional driven comp. At Old Navy, today I talked earlier at my opening comments about the relaunch of their T program, there was a nice marketing campaign tied into that. That business was very strong. Relaunched great color selection, the way only Old Navy can. So it's a -- it was a brand-new T program, bought very well, marketed very well and that again wasn't a one-dimensional, but I referenced it only because that's really at the heart of what Old Navy does well. To be quite honest with you, I wish Old Navy would have had a little bit more inventory in colored bottoms. I'm sure we're not the only retailer to make that comment. Somebody was asking Sabrina earlier about chasing, about inventory, I think it was you, actually, John. So the notion from our end was that there was once spot that as you could redo it -- But Old Navy is such a big business. It doesn't take a lot because we're not dealing in tens of thousands of units. We're dealing with Old Navy. When Old Navy starts to do well, you're talking about hundreds of thousands of units. So the team did the best they could, and it’s not like we disappointed customers broadly in the spring. But if there was one category that they would like to have gotten a mulligan on, it probably would have been on colored bottoms. So but now -- if you'd go on in our store now, there's definitely color on a number of categories for Old Navy. So I would say that their assortment mix change, which is something I talked about in the February call was a contributor. The Ts helpful. They did well on color but they were probably the one brand that wished -- because it was tough to predict they could have some more inventory in that key category.

Your next question comes from the line of Evren Kopelman with Wells Fargo. Evren Dogan Kopelman - Wells Fargo Securities, LLC, Research Division: I had a question on the marketing expense for the Gap brand. It might be impossible to really figure this out but how much of the improvement at that brand do you attribute to the marketing versus maybe the product improvement? I didn't know if you had certain ways to measure the return on investment in marketing. Glenn K. Murphy: We've had so many people figuring that out. We've got a department of very smart people who can figure these kinds of investments. So I'm not really at liberty, in fairness, to sort of say, well, this was driven by the product, this was driven by the marketing. What I can tell you is when we had the call in February and said look, we're going to put some more money in marketing. We're going to be thoughtful, we've mentioned also that we're -- we had the flexibility to ship up or down on marketing. It’s one of those investments that you can make and read your business and if you see that it's actually driving in this case here, one of the #1 metrics have increase in -- marketing would be traffic. And the second biggest metric, as far as I'm concerned, is increasing your sell-through with the right price. And so I felt good about the marketing at Gap, about our new team in New York working with our new agency and the execution of the stores was really well done. We're now in our summer program, which is the evolution of the platform of Be Bright and now you have meet your own T program, which is instead of bottoms, we're talking about T-shirts at Gap. So we can quantify, we can quantify the mediums, we can quantify markets, we can quantify the actual impact on creative. All that has been done and it's helping inform better decisions in summer, fall and holiday.

Our next question comes from the line of Janet Kloppenburg with JJK Research.

Sabrina, I think I'm a little confused about something. I think you said that we shouldn't count on the leverage of rent and occupancy going forward. And I'm just wondering if comps continue to be positive, shouldn't we -- is there any obstacle to getting leverage on rent and occupancy and if you get some AUC contribution, couldn't we expect more leverage on the same level of comps? Sabrina L. Simmons: Yes, I'm glad I have the ability to clarify that, Janet. No. But what I said was we remain very confident, actually, that we will leverage rent and occupancy on a positive comp. I just said in the first quarter I cautioned against extrapolating that level of 130 basis points, on a forward comp because there's a lot of moving parts that can make quarter by quarter a little bit lumpy. But we feel confident about leveraging on a positive comp.

You mean there's factors involved in rent and occupancy or there are other factors including markdown levels, et cetera? Sabrina L. Simmons: No. I was just referring inside of rent and occupancy. And it's -- if you go back to my remarks, I mentioned items like timing of store openings and closures. We have quite a ramp up plan going, for example, with our Athleta stores here domestically, with our China stores. So the timing of that can make it bumpy quarter-to-quarter. And in addition, there's other stuff like landlord settlement, there's the timing of amendments and escalations. But overall, confident that we will leverage rent and occupancy on a positive comp.

Okay. And Glenn, I was wondering, in the fourth quarter call, you pretty much led us to believe that you felt confident in Gap and Banana Republic in the spring season. But perhaps that Old Navy would come along later, that it's turn was not ready yet, that you didn't see it coming. But they actually had a very good first quarter. So I'm wondering if you're feeling more confident there or if we should look to Gap and Old Navy to drive the business for the next couple of quarters. Glenn K. Murphy: No problem. What I was attempting to communicate back in February was that Old Navy still had, what I was referring to quite often on the call corrective measures to make. And not that by any stretch of the imagination was Gap and Banana Republic done with their commitment to the corporation of continuous improvement week over week, month over month, quarter-over-quarter. But from my lens, they were a little further ahead, and there was some assortment changes. And I think I spoke to assortment mix that had to change and some pricing competitiveness that had to get a little sharper at Old Navy coming off of, as we referenced earlier, through cost increases, a very challenging fourth quarter for them. So yes, you're right. I'm not saying I was presently surprised. But if I would have handicapped it back in February, having seen all the products, seen all the marketing, knowing the teams, while, I was -- obviously, we're all pleased with the overall 4 -comp and the 5 at Gap, 5 at Banana Republic and the 4 at Old Navy. Sitting here 3 months ago, would have been easier for me to think that yes, they were better prepared Banana Republic and Gap for the first quarter. And Old Navy could still have a good quarter. But they probably have to work a little harder. So hats off to Nancy and Tom for -- while still making the changes that I would say, Janet, now are almost done. We're in the month of May. I think I committed on the call by the end of May, the majority of their changes would be in place. So hats off to them to be able to still do a 4 comp and contribute to the overall profitability and performance of the company in the first quarter.

Okay. So you -- and the pricing architecture there, is it now where it needs to be? Glenn K. Murphy: Yes. There might be, Janet, a little few more tweaks coming in. I would say from my perspective after the new flow comes in, in May, which is just before the Memorial Day weekend, that all the work we did last September and October will then be reflected in assortment and our value proposition.

[Operator Instructions] Your next question comes from the line of Randy Konik with Jefferies. Randal J. Konik - Jefferies & Company, Inc., Research Division: I guess, Glenn, when -- in terms of Tracy's influence on the business in the back half, what do you think we should be looking for there? And on the sustainability of improvement in Old Navy, do you think that, that happens once all those changes done are in May? Glenn K. Murphy: No problem. The first thing I would say, it's always worth repeating, that all of our businesses from the design perspective are led by teams. Michael Ingram Jones is our leader of design at Old Navy, but he has a very great team that works with him. Simon Kneen is our head of design at Banana Republic, has a very good team. Tracy is not our head of design by any stretch of the imagination, but she has this new role called creative advisor. So she's working with a team lead by Pam Wallack in New York. And I would say Tracy as I mentioned in my opening comments, her and Jill have both have a very nice impact on the design teams and are contributing at a very high level. Her impact based on her contribution and the advice she is providing as creative advisor will be felt over the holiday season and Gap brand is one we'll get to see how her working in conjunction with this very qualified design team in New York will bring the Gap product for holiday around the globe. So that's my view and the same would apply to Jill. Because Jill, once you start a little bit later than Tracy, Old Navy is pipeline is shorter, so Jill will have the same contribution -- working really with Michael Ingram Jones who will own all our product as he has in the last 4 years, providing whatever great advice she can to Michael and his team to actually really prove our assortment to even a higher level for holiday. So that's on the Tracy front. In terms of Old Navy, what I would just say to Janet was definitely May, on the month that we're in right now and near the end of May, I'd say we made assortment, probably missed the last reporting week but the assortment that delivers into May, which really we call the June product, will be when the final changes and tweaks from a value proposition, for making sure that the right balance exists inside of Old Navy between good, better and best, which we admitted about 6 months ago, might have gone a little bit off in the fall and holiday. Those will all be in place and now it just comes down to them working within that framework and designing amazing product, merchandising, marketing and the store teams to make sure that Old Navy's triangulation even though it's more than 3 of fun, fashion, family and value shows up really strongly from June on.

Your next question comes from the line of Paul Lejuez with Nomura. Paul Lejuez - Nomura Securities Co. Ltd., Research Division: Just wondering if you're seeing a lift in Old Navy stores the chair, a center or nearby J.C. Penney store. And second, just wondering if you could talk a little bit about sales productivity and four-wall profitability of Athleta. Glenn K. Murphy: Paul, we're not really tracking it directly. Look, when somebody, in a quarter only, leaks out 20-plus percent of sales in a business that's sizable, I would say that I can't think of anybody in the value business that gets some benefit from it. But we're not, Old Navy's not by any stretch of the imagination, J.C. Penney's #1 competitor. I'm sure there's other brands you can think of, the more likely when they reported their first quarter. If they had comps, it might have been above their run rate comp, maybe they got more benefit. But there's nothing we can really look at Old Navy and see it but I'm sure anybody in the value business got some benefit from that. And that team there, I'm not speaking for them, but they're going through a lot of unique work to change their business model. So this is just one of those quarters that happens and nobody here is sitting back and thinking it's sustainable in terms of the amount of business they're releasing. I'm sure that they were doing all the work they can to make sure it's not. So that's my view of when it comes to J.C. Penney. Now with Athleta, the four-wall businesses -- we're actually really pleased. You know us, we would not have gone forward a number of months ago and said we had a target and try to open 25 new stores in 2012. It could be indication that we have in the stores coming weren't very favorable. The thing about that business that -- if you're in any other business inside of our building that you got to be envious about would be is productivity per foot is very impressive and they do very well and that's a big driver of that is because of their product and their marketing is their cross-sells [ph] are very impressive. And they do a very good job of that as a business. And I look at it and go, well, we brought some value and advantages to this team, this company and brand that we brought into the fold a couple of years ago. At the same time, they're bringing a lot of lessons to us here at Gap Inc. And so we've been very pleased with the people at Athleta and Scott Key's leadership and the business model they've created online catalog and in stores. It's a very nice business. Paul Lejuez - Nomura Securities Co. Ltd., Research Division: Any quantification at all on that, Glenn? Glenn K. Murphy: No, not really.

Your next question comes from the line of Lorraine Hutchinson with Bank of America. Lorraine Maikis Hutchinson - BofA Merrill Lynch, Research Division: Sabrina, just moving back to the SG&A, there's been so many years where that has been such a controlled line item. And just curious if you start to see sales stabilize and continue to trend positively, are we in for a few years of an investment cycle in either your stores or your home office? Sabrina L. Simmons: Yes, I think it would be premature to get too far ahead of ourselves, Lorraine. But certainly, this year, we would like to make those investments that we've been pointing to since last quarter's call, focused mostly on the domestic business. Because, again, I'll point to the fact that we're pleased that since 2008 -- between 2008 and 2011, that total expense base remained relatively flat while we were making some significant investments internationally or I should say globally. So our global online launch, our launch in China, our launch in Italy. And so we were very disciplined about trade-outs as we made that to keep that line tight. And we felt fine about that. I think this year, given that we're actually seeing product assortment improvements that we've been looking for in our North America businesses, we want to support and propel those with investments in the business that we think have a high likelihood of a nice return for our shareholders. So that's clearly our position this year. How long that might last? But it's certainly our position this year. And again, we'll watch the pacing and momentum because we definitely are always balancing, driving value to our shareholders and we'll be responsible about the magnitude of those investments depending on that top line.

And your next question comes from the line of Jeff Klinefelter with Piper Jaffray. Jeffrey P. Klinefelter - Piper Jaffray Companies, Research Division: Glenn, I just wanted to ask a little bit about the International business in light of the focus on those markets right now, kind of what your expectations are in your core markets, your core International directly operated markets. And then specifically, since you have mentioned Old Navy in Tokyo, opening a store with plans for more, you've had a Gap business there for years and just -- some brands have had issues in that market. Just wondering kind of how you're approaching the Old Navy rollout differences between that and the U.S. pricing marketing positioning, et cetera. Glenn K. Murphy: Okay. Jeff, well, look. They had a 13% sales increase as far as I know in the quarter. And so we feel good about that, that's because what we try to do and I think we've been thoughtful about it and explained, if it's not on these phone calls, it's certainly at conferences that we attend, that we like the way we've actually mixed the business internationally. But it's a combination of our corporate-owned business, our very strong and exciting franchise business that grew at 30% in the first quarter and now with global online and global outlet. So we're looking at it this way, we're saying, look, we take the mix but we also look at every country. It's such a broad statement as you can appreciate it, calling it International business -– we have a European business and we're watching very carefully. Our team there in Europe knows that. They're making all the right decisions, whether it's hunkering down when they have to hunker down, making sure the stores that are strong for us, especially in big centers like London and Paris and Milan and Rome, that those stores are strong and out there winning, there's -- they're in difficult conditions in Europe. Now we go sort of around the world and look at our business in Japan, which in the quarter, we had to live with the -- about 6 weeks of the anniversary of the tragedy of 3/11 and then 6 weeks of some recovery. And we do feel really good in Japan otherwise, about our business in general but our team there and about the prospects to putting online more outlet stores and introduce Old Navy. China, we've committed ourselves to 30 stores this year. We're on track. We did 7 stores in the quarter, which was a nice number for us. That's good. Usually, you don't see front-end loaded real estate as I mentioned in my opening comments and our franchise business of 30% comp was -- sorry, 30% total sales was very strong. So was our -- we don't release this numbers, but our global online business was also very powerful in the first quarter. We really like what we saw in our International markets and in China, that's why we're looking forward to Japan. Now when it comes to Old Navy Japan, not to get into too many details, but I think one thing I would like people to appreciate is, because it's a value business similar to our outlet business, really, what you're looking at here is a push model. So we're -- the Old Navy team in Mission Bay, yes, there's a nice collaboration with a very, very small focus team in Japan who's going to do the execution. But really, we're pushing out the product, the marketing, the store design, the standards, the operating model. It's all based on how Old Navy operates here today. That's been pushed out into the Japanese team, and there's a great team there that are going to help execute it, working in conjunction with the team here in North America. But a different completely different model than Gap, which we've been working since I've been here to sort of undo a little bit and get to more consistency and continuity around the world, which a big part of that was opening the global center in New York was to get to that. Old Navy started from day 1, we're going to model it more off our very successful global outlet business and have a team here in San Francisco be pushing out and let the Japan team execute it with very little -- I want to be clear on this, very little localization. There'll be some, and we did all our research here. We've talked to so many of our customers and so much research like we did in China that Old Navy, the way it's positioned here in North America, will work very well in Japan. That's why there's very little localization.

Your next question comes from the line of Brian Tunick with JPMorgan. Brian J. Tunick - JP Morgan Chase & Co, Research Division: I guess one for Glenn, first -- just sort of maybe at the Gap division, we know it's early but is there any evidence of regaining lost customers here early in the year or are you really seeing your existing customer buying more? And you have the DVF Kids and the thread lists, Halo playing out. So just curious what you think about regaining lost customers. And then for Sabrina, maybe any comments on why you've been so cautious on the share repurchase program. It looked like Q4 was pretty slow and here as well in Q1. So just... Glenn K. Murphy: Brian, on the customers at Gap, definitely, part of the reason to step up some marketing and do the work we did almost over a year ago now bringing a head new Chief Marketing Officer for the globe in Seth Farbman and go to a new agency relationship with Ogilvy -- was to not only get new customers into the stores, globally, which is really one of the top priorities for Stephen Sunnucks and for Art Peck. But also I would say that we want to make sure that we also shift the mix of our customers. And as we look at our range of sort of age demographic, business these days is so much more about just age demographic but to be only on that measurement, we do believe there's an opportunity for more customers in the mid, late 20s, early 30s to be experiencing the brand, checking it out. People who may be we've not been as relevant and appealing to in the last number of years to get them to come in to see Gap. Now fortunately for us, a nice trend came by in the early part of this year which really could appeal to a very democratic group of customers, but maybe, especially was appealing to people in the age group I just mentioned. So the marketing as you saw was attempted not only in the marketing and the creative that was done from Seth's team and the agency, but also in the medium I would say that the local marketing teams and the global team are choosing to speak to our customers. So I'm actually quite pleased with a little bit of research I've seen. It is early days that were there's some new customers in the quarter? Absolutely. But I'm really -- what I'm digging deep into -- since I know Art in North America in particular, is digging deep into is what kind of mix of customers is he getting? And that is one of the goals of the incremental marketing. Sabrina L. Simmons: And with regard to share repurchase, Brian, I wouldn't read too much into the first quarter at all. I mean, we've had years where our pattern is very lumpy and we've had years where we haven't bought in the first quarter and it's been back half weighted. I think what was unusual about the first quarter was that -- for our stock to go from under 19 when we entered the quarter all the way above 29, that's just an unusual movement in the stock very quickly. And so our programs just sort of didn't catch up with that level of movement, let's say. But we're obviously, long-term believers in our stock and nothing's changed with regard to our philosophy of distributing that excess cash. So share repurchase is embedded in our overall spectrum of scenarios and our guidance. I think it's just important once again to factor in that it -- the timing matters. So the more back half weighted you get, it actually can have a meaningful difference in that weighted average share count.

Your next question comes from the line of Betty Chen with Wedbush. Betty Y. Chen - Wedbush Securities Inc., Research Division: I was wondering, Glenn, if you can speak to Piperlime with the anticipated opening in New York. How is the team thinking about replicating that online experience inside the store or presenting the collection in person? And then I also had a separate question just regarding the competitive landscape. It seems like we came from a Q4 timeframe when there was a lot of excess inventory in the marketplace and perhaps a lack of fashion trends to excite consumers to now a complete reversal in Q1. How do you view the competitive environment as we go into Q2 and how is the team kind of executing against that going to the second half as well? Glenn K. Murphy: No problem. On Piperlime, look, I'd say in some ways, we're taking a little bit of the blueprint from Athleta. Now they're different businesses for sure. In the Athleta, purpose for doing stores was so -- such a strong call from our customers who bought on catalog and online, but the nature of that product, they really wanted the opportunity to physically experience the brand and try that product on because it's so technical. And the customers, they are going after, well, they really love the online experience and were inspired from the catalog, they really wanted a physical manifestation of the brand. Well, we've taken that blueprint for Piperlime and so it's tough. If we were steady right now in September in SoHo, I could articulate to you how that 4,500 square foot store is going to come across. But I actually think, as pleased as I was because we have a central team that does design. As I'm pleased with that team -- central team on store design that came up with the magic to how to translate Athleta from an online business to bricks-and-mortar off-line business. I really believe that team is going to do the exact same thing for Piperlime. Now it's one store, right? So nobody's going to get excited. It's just we're going to do one store and whether there's another store from there or not, we'll figure it out. But it's something that our customers, given that target for Piperlime I've asked for, I think we should try it. Now we did this for Athleta, thinking more than Piperlime. We could see some kind of rollout that was more what's the number, how big it could be, given -- because it's a different business. But here I think we're going to find out whether it ends up being just a phenomenal marketing vehicle, so be it. If it ends up something greater than that, they can have commercial success, we'll look at it. This will -- I won't know that answer from another year from today. Now what it comes to the competitive landscape, I'm not sure as much if it is the trends that is affecting the competitive landscape. It's obviously, still highly competitive out there but how our teams are thinking about it and I'm saying this a little bit to Brian. This investment in marketing to be determined what level and to what pace we're going to keep it going. But the intention behind that at Banana Republic, online -- Banana Republic a lot of direct-mail. Online, obviously, some investments and online media for the total brand for online business and for our store business and the out-of-home marketing we're doing for Gap brand. The intention behind that is to really showcase the brand and get excited behind the product and the positioning of those 2 businesses. And because of that, we hope and we saw that in the first quarter where we become less reliant on some of the promotions that all of us got caught up to starting in the summer of 2008. So I'm thinking maybe you're correct, I need a little bit of the trend, maybe a little bit that the consumer conditions are slightly better than a year ago. They're not great but slightly better than a year ago. And some unique marketing and I would say traffic driving initiatives that each brand is digging, look at Old Navy they're doing something called Super C-A-S-H, which is a bounce back program, which is very successful for them, that reduces their dependency on just traditional promotional needs. So all of our teams are thinking, one, creatively; secondly, they’re always thinking about the customer and what the brand stands for, for them; and thirdly, which matters most to me, how do I win and beat the competition through great ways of getting people across our lease line at a value proposition that fit each one of our brands.

And your next question comes from the line of Dana Telsey with Telsey Advisory Group. Dana Lauren Telsey - Telsey Advisory Group LLC: As you think about marketing, Glenn, how do you think of marketing by brand -- marketing plans by brand certainly with what you've done with Old Navy? How do you see it resonating, given the enhancement you've made in the product? And just on the product side, the needle movement between product and price, obviously, more opening price points at Old Navy. How do you see that architecture moving forward? Glenn K. Murphy: On the marketing, as I mentioned on the call, how I think about it, I guess, across the brands, I mean, we came into the year feeling actually pretty good because we put a lot of time on product and on marketing platforms in the fall of 2011. So I came in thinking for the first time since I've been leading the business, we've had a clear sense of our product direction. And therefore, I would feel more confident I haven't decided yet how much marketing to put into each one of our businesses, but I felt more confident than I felt it a long time, putting marketing behind the direction and what I believe to be the sustainable direction. It's not just a onetime quarter, we're hoping our -- that our teams who've worked really hard, design teams, our merchant teams really get the clearer view now of long-term momentum sustainable great product inside of our stores. So the marketing, whether it's the platform I talked about earlier on Be Bright, whether it's the versatile new work at Banana Republic, whether it's Funnovations Inc. with the key focus there being on fun and expression of value at Old Navy, I actually think that our marketing has delivered for us in the first quarter. And no different than product. The marketing teams know that we expect benefit, we expect traffic, we expect a step up in relevance. Because otherwise, why put the money forward? And that's one of the key components for us. Now focus on Old Navy. Old Navy is a brand and a value sector. It's a huge competitive advantage. So they have to continue to feed marketing. They have plenty of marketing from last year's. It's not -- it's not any fresh marketing going into Old Navy. They have plenty of marketing from Elway. Their issue is just continue to do the right kind of marketing and the right kind of messaging to build on that differentiation of being a brand in the value sector. Now in the product and price, which we all -- obviously all, you including Dana, the industry call what's our value proposition, look, I believe the company, because of the unique year in 2011, may have gotten off what I thought was a very good pricing architecture, value proposition in 2010. Now there was unique circumstances. But we've already had our moment where we said we made some mistakes in 2011 by not staying true to a value proposition and pricing architecture, that workforce in 2010. So it wasn't very difficult to go back because the competitive landscape is not such a change for us that anyone of our brands would have to dramatically shift the architecture and the value proposition in 2010. We just got to tweak it. And I think that I've been part of meetings with the teams because that's something I get involved with, when it comes to the brands. And I do believe there's always work. This is not a static moment. It's fluid. But the work I've seen done so far, what I want to throw -- in fairness, I want to throw our outlet business in there, too, which is a very important pricing architecture and their promotional positioning. But I look at all of those businesses including online, I think some very good decisions are being made. But I expect them, one, to stay highly competitive to know exactly who they're up against, where their share needs to come from and make sure they protect their value proposition going forward, while making good intelligent decisions.

Your next question comes from the line of Laura Champine with Cannacord Genuity. Laura A. Champine - Canaccord Genuity, Research Division: Sabrina, I just wanted to dig a little bit more into the EBIT rate guidance. Because we were surprised that it's not changed, given the success that you've shown in Q1. Are there additional expenses that you're adding to the back half? Could you comment on that a little bit more? And also, what kind of contribution do you expect to profits from the franchise business this year? Sabrina L. Simmons: So I think with regard to overall operating margin, there really, Laura, has been no change in our overall view of the how the year plays out with regard to driving that, about 10% operating margin. So again, we're saying we want to drive some top line, we want to do it at healthy margins with some margin expansion in the back half. And then we're going to deleverage operating expenses, and that's sort of the recipe to how you get to about 10. And so really no fundamental change in how we are doing the business for the full year. And then the second part of your question was? Laura A. Champine - Canaccord Genuity, Research Division: The contribution... Sabrina L. Simmons: Oh, franchise. Laura A. Champine - Canaccord Genuity, Research Division: Right. Sabrina L. Simmons: Yes, so franchise is segmented, but I think Glenn and I have said several times that as you can imagine, that model is a very healthy model. So we're very pleased to see it growing 30% in the quarter and continued growth through new partners and new countries. It's obviously, very capital light. It drives a very nice profile for us in terms of earnings growth and a very nice return on sales. So the more that mix is in, the happier we are.

And your last question comes from the line of Robin Murchison with SunTrust. Katrina O'Connell: Okay. Well, I'd like to thank everyone for joining us on the call today. As a reminder, our earnings press release which is available on gapinc.com contains a full recap of our Q1 results as well as the forward-looking guidance included in Sabrina's remarks. And as always, the Investor Relations team will be available after the call for further questions. Thank you very much.

Thank you. Ladies and gentlemen, this does conclude today's conference call. You may now disconnect.