LarryMontgomery - Chairman and Chief Executive Officer KevinMansell - President WesMcDonald - Chief Financial Officer

RobertDrbul – Lehman Brothers [Michelle Penn] – UBS AdrianneShapira – Goldman Sachs ChristineAugustine – Bear Stearns DanaCohen - Banc of America Securities Mark Miller - William Blair Liz Dunn - Thomas Weisel Partners David Cumberland - Robert W. Baird Steve Kernkraut - Berman Capital Bernard Sosnick - Oppenheimer Richard Jaffe - Stifel Nicolaus Michael Exstein - Credit Suisse David Glick - Buckingham Research Deborah Weinswig - Citi

Good day everyone and welcome to Kohl’s thirdquarter 2007 earnings release. Pleasenote that today’s call is being record. Information provided on this call isrelated to the press release issued on November 15 for the third quarter fiscalmonth. Statements made on this call, includingprojected financial results are forward-looking statements that are subject tocertain risk and uncertainties that could cause actual results to differmaterially from those projected in such forward-looking statements. Such risks and uncertainties include those thatare described in item 1.a in Kohl’s annual report in Form 10-K, and may besupplemented from time-to-time in Kohl’s other filings with the SEC – all ofwhich are expressly incorporated herein by reference. Also please note that replays of this call willbe available for 30 days but this recording will not be updated, so if you arelistening after November 15, it is possible that the information discussed isno longer current. At this time, I would like to turn the callover to Mr. Wes McDonald.

Thank you. With me today is Larry Montgomery, Chairman and Chief ExecutiveOfficer, and Kevin Mansell, President. Iwill talk a little bit about financial performance for the quarter year-to-dateperiod, and Kevin will go over our merchandising and marketing initiatives andLarry will wrap-up with our store expansion plans, and then some closingcomments along with earnings guidance for the fourth quarter. Salesfor the third quarter were approximately $3.8 billion versus $3.7 billion lastyear, up 4.8%. Year-to-date, sales wereapproximately $11 billion versus $10.1 billion, up 8.3%. Total sales for the prior year period include$15 million related to the initial recognition of gift card breakagerevenue. Excluding this item, totalsales have increased 5.2% for the quarter and 8.4% for the year-to-date period. Thethird quarter comp sales decreased 2.6%. The comp reflects decreases in average transaction value of 1.8% and intransactions per store of 0.8%. Our year-to-date comp has increased 0.7%, whichwas a result of an increase in average transaction value of 1.4% and a decreasein transactions per store of 0.7%. Comparable store sales figures were unaffected by the gift card breakagerevenue. Southwestled the Company for both the quarter and year-to-date periods, and from a lineof business perspective, accessories led the company for the quarter and men’sfor the year-to-date period. Our credit share was approximately 45.3% in thequarter and 43.2% in the year-to-date period; this reflects an increase ofapproximately 170 basis points over the prior year quarter, and 155 basispoints over the prior year-to-date period. Movingon to gross margin, our gross margin rate for the quarter was 37.1%, upapproximately 10 basis points from last year. Year-to-date, our gross marginrate increased 70 basis points to 37.6%. Excluding the $15 million gift card breakage revenue in 2006, grossmargin increased 32basis points for the quarter and 77 basis points for theyear-to-date period. Theimprovements were due to the continued impact of our merchandise inventorymanagement initiatives, improved mark-up, the adoption of markdownoptimization, and increased penetration of both private and exclusive nationalbrands. Forthe fourth quarter we expect our gross margin rate to be flat to lastyear. On the SG&A lines, SG&Aincreased approximately 9% for the quarter, faster than sales but lower thanour expectations about 12% to 13% over the last year. Creditand corporate expenses leveraged for the quarter: stores, advertising anddistribution centers expenses did not leverage the quarter due to lower thanplanned sales; our desire to maintain a positive customer and store experience;and incremental marketing expenses associated with the launch of new brandinitiatives; as well as our strategy to shift more marketing for new stores tothe post-opening period. Ourdepreciation expense for the quarter was up $115.2 million versus $94.3 millionlast year, an increase of approximately 22%. We expect our fourth quarter depreciation expense to be approximately$125 million. Forthe quarter pre-opening expenses were $38.3 million this year versus $28.5million last year; current year expenses were higher than prior year as we openedmore stores in 2007 in the third quarter than in 2006 with 95 openings versus68. Our expectations for pre-opening expenses for the fourth quarter areapproximately $8 million. Operatingincome for the quarter declined from $369.4 million to $330.9 million for thecurrent year. Year-to-date income was up 9.1% over last year, and operatingmargin is up approximately 10 basis points. Netinterest expense increased to $18.7 million for the quarter, compared to $10.2million in the prior year. Year-to-date net interest expense was $39.4 millioncompared to $30.4 million last year. Our expectation for interest expense forthe fourth quarter is approximately $28 million. Ourincome tax rate for the quarter was 37.85% and we expect our tax rate to be 38%for the fourth quarter. Netincome for the third quarter was $194 million compared to $224.5 million lastyear, and year-to-date net income was $672.2 million, up 7.7%. EPS for the quarter was $0.61 compared to$0.68 last year and year-to-date EPS was [cut off in my recording] up 13%. Movingon to the balance sheet, we currently operate 914 stores compared to 814 storesat this time last year. Square footage for your models at the end of thequarter was gross square footage 81 to 24 and selling square footage of 68 to33, both up approximately 11%. Movingto investments, we currently have $26 million in investments compared to $319million last year. The decrease is the net result of stock repurchases andinvestment of $1 billion in new debt proceeds in 2007, and $1.6 million ofcredit card sale proceeds last year. Ourinventories at the end of the quarter were $3.9 billion versus last year’s $3.2billion. On an average store we are up7.6% from last year, slightly higher than our original guidance of an increaseof mid-single-digits per store. Capitalexpenditures were approximately $1.3 billion and we will continue to expectcapital expenditures of approximately $1.6 billion in fiscal 2007. Movingon to accounts payable, $1.7 billion versus last year’s $1.6 billion. As apercent of inventory, 43.7% versus our guidance of high-forties. This reflectsa reduction in receipts as a result of lower-than-expected sales, and we willcontinue this conservatism into the fourth quarter. Weightedaverage number of shares, basic for the quarter $316.9 million; year-to-date,$319.7 million; diluted, $318.6 million and year-to-date $322.4 million. Part of the $2.5 billion repurchase plan thatwe announced in September, during the quarter we repurchased $4.2 millionshares of our stock at an average price of $56.50 per share, for a total of$238 million. Withthat, I’ll turn it over to Kevin to talk about merchandising, marketing andinventory management.

Thanks Wes. Let me start with sales. As Wes mentioned, comparable sales decreased2.6% for the quarter. Sales in weather-sensitive business such as outer wear,fleece and sweaters experienced significant double-digit declines on acomparable store basis, contributing to our sales shortfall. Accessories led the Company for the quarter,with strong performance in beauty, watches and fine jewelry. Better performancein Home, included home décor, bedding and food prep. Men’s and footwearoutperformed the Company on solid performance in men’s casual sportswear and inwomen’s shoes. In Women’s apparel, the updated andcontemporary [business], which includes SimplyVera, Vera Wang, and Junior’srelated separates reported strong comps. Consistent with prior quarters,Classics sportswear continues to trend downward other than Chaps. Children’swas the one line of business most affected by the weather with weak comps inall age groups in the quarter. Given the runaway rate of the business in thethird quarter and being conservative in our view, we would expect the followingfor the fourth quarter. Comparablestores sales in the range of flat to -0.2% for the fourth quarter in total. Ourexpectation by month would be for November to be positive high-single-digits,December negative mid-to-high single digits and January to be comparable to theoverall quarterly comp. As we look at our performance in the quarter,in spite of the difficult overall business, we were extremely pleased of theperformance of our two newest exclusive brands, SimplyVera Vera Wang and FoodNetwork. The response to the initial launch of SimplyVera Vera Wang inSeptember was overwhelming, particularly in apparel and in handbags. All of theother categories performed very well, at or well-above our planned levels. Food Network was launched two weeks after VeraWang in September. Food Network is positioned to cross a broad range of productcategories including cookware, dinner ware, gadgets and cutlery. We were also very happy with the performanceof that brand versus our plans as well. In addition, the performance of both ourjewelry business and our beauty business continued to stand out against ouroverall business trend. As you know, these are two businesses that we arefocused on driving long-term growth with continued changes and improvements inour assortments. There were also a number of additions to ourintimate apparel area in the third quarter. We launched moments, a privatebrand of intimates in 200 stores in October with an all-store roll-out plan for2008. In addition, there are twoexclusives brands to target more updated and contemporary customers in theintimate area, with Daisy Fuentes and SimplyVera Vera Wang. All three of these new brands are performingvery well at this point. The customer continues to respond well to allof our private and exclusive brand initiatives and their penetration reachedalmost 39% of total sales for the quarter, up over 300 basis points over lastyear. As Wes indicated, this continues to be a driver of merchandise margin improvement. And finally, earlier this week, we announced amulti-year licensing agreement, naming Kohl’s as the exclusive U.S. retailer of theFILA SPORT collection. The collection will feature women’s, men’s andchildren’s apparel, footwear and accessories. It will be available in all ofour stores nation-wide, and on kohls.com in fall 2008. We think it’s anotherstrong world class brand addition in the area active footwear and apparel whichis one of our strongest growth businesses and a broad-based area of growthindustry-wide. Moving on to inventory management, as Wesindicated we finished the quarter slightly over our inventory guidance ofmid-single-digits, with 7.6% more inventory per average store. However,adjusting for the calendar shift our inventory levels on a per store basis wereonly up 2% per store compared to the actual date last year. In addition, wewere very conservative in our planning of seasonal categories such as outerwear, sweaters, fleece and cold weather accessories for the Fall and areessentially flat to last year in these businesses. Overall, I’m very comfortable with our levelswith a continued focus on receipt flow we will move through it quickly. Lookingforward, I would expect inventory levels to be up low-single-digits on a perstore basis versus last year at the end of the fourth quarter. We’ve adjustedfourth quarter receipts as necessary, to reflect our more cautious salesguidance for the quarter and as I indicated, continue to look to improve ourinventory effectiveness. As Wes mentioned earlier, we expect grossmargins to be flat to last year, as we expect a very promotional holidayseason. Finally, on marketing. We continue to befocused on adjustments to our marketing to reflect those things that we areseeing the greatest productivity around. These include an increase in directmail, particularly to our credit card file; broadcast and the Internet. We have seen and expect to continue to see anincrease in the overall promotional environment, and given our value strategy,we adjusted our promotional plans accordingly. All this has been included in the guidance thatI gave from a merchandise margin standpoint, and that Larry will be giving froman earnings standpoint. We feel that more than ever, there is a clearmarket share opportunity for gaining additional share of wallet from both newand existing customers. However, we intend to focus our efforts in that regardaround those businesses and events that customers are responding to, to thegreatest degree. Let me turn it over to Larry to wrap-up.

ThanksKev. Quickupdate on new stores; we have now opened 112 stores for 2007. It was 7 in March, 10 in April, 18 in fiscalOctober and 15 this past week in November, and we now operate 929 stores. Weexpect approximately 90 stores in 2008, including approximately 28 which willopen in the spring season, split between March and April. The majority of thestores opened in 2008 will be our 88 thousand square foot prototype withapproximately 20% of the total being a smaller 68 thousand square footprototype. Afew comments on the third quarter before I get into the fourth quarterguidance. Despite a challenging environment, we continue to operate ourbusiness in a conservative manner, managing inventory investment as we continueour improvement in gross margin, while reducing expenses where possible withouthurting the customers’ in-store experience. Weremain focused on our four initiatives: merchandise content inventoryinvestment, marketing and the in-store experience. We believe that we continueto make progress in all four areas, knowing that the customer continuallyraises her expectations. Aswe have said in the past, we’re managing the Company on a time-horizon longerthan one month or one quarter, and we will continue to make necessaryinvestments in people, infrastructure and stores to achieve our long-rangeplans. We are well-positioned in our industry with a reputation for great valueand our ability to drive business and take market share. Forthe fourth quarter, we expect comparable store sales performance, flat to-0.2%. That means total sales increaseof 3% to 5%. A flat gross margin, andSG&A growth of approximately 5%. This would result in earnings per diluted share of $1.45 to $1.51 forthe fourth quarter. Earnings per sharefor fiscal 2007 would be in the range of $3.52 to $3.58, an increase of 6% to8% over last year. Withthat, we’d be happy to take some questions.

(OperatorInstructions) Ourfirst question is from Dana Cohen - Banc of America Securities. Dana Cohen - Banc of AmericaSecurities: Canyou help us understand [] of gross margin over the quarter, because if I thinkback to the guidance you gave at the end of September, where you were okay withthe guidance, your previous guidance, you were looking for significant grossmargin improvement, and then came in with the 10 basis points. It would implythat October was pretty tough, so help us understand that relative to the flatgross margin expectations for the fourth quarter.

The previous guidance for the third quarter wasup 10 to 20 basis points so we did come in at the low end of our guidance, andas I mentioned in the call, taking out that $15 million we were actually up 36basis points last year so not as dramatic an improvement, versus our trend inthe spring, but also remember we started to put stores last year on markdownoptimization in the third quarter and we had about half the chain on markdownoptimization which benefited us a little bit last year. Dana Cohen - Banc of AmericaSecurities: Maybe go at it another way. We’ve all seen thecommercials with store busters, take another 10% off something you were runninglast night, should we think that those type of events are now included in theplan?

Well that’s what we tried to say on the call;our previous guidance for gross margin, if you remember, was up 30 or 40 basispoints, so being flat is going to leave us a lot of room to be very sharp interms of our value message for the fourth quarter.

Ournext question is from Christine Augustine – Bear Stearns. Christine Augustine – Bear Stearns: Couldyou update us on markdown and size optimization initiatives and how much do youthink that might have helped you in the quarter?

Boththe markdown optimization, size optimization continue to be rolled out. In thethird quarter, enhanced markdown optimization continued on the store level, andcontinued to improve the percent of our inventory on size optimization. I wouldsay on the markdown optimization front, it was an element of margin, but as weprioritize them—I think we’ve always talked about prioritizing [] our overalllevel of inventory management mix and then markdown optimization comes inunderneath both of those—and the size optimization we’re focused on more as asales top-line revenue enhancer, not so much as a margin enhancement in thequarter. Christine Augustine – Bear Stearns: Kevin,I’m wondering what you are seeing with the classic traditional women’sbusiness; it does seem to be a problem across channels of distribution, as youlook into ’08 and you are placing the forward receipts, do you think there’sgoing to be any break? When do you think things might start to turn there? Whatcan you do in the meantime to offset the weakness?

Ithink the main thing we’re doing to be honest is trying to give the customerwhat they want. They appear to want more updated and more contemporaryofferings and so we, as you know, added on pretty significant new ones in thatregard. Elle is another new enhanced brand as we go into ’08. Not everything in Classis is disappointing;Chaps has continued to perform well, so I think we’ve got the right style andfashion and with a good value equation we’ve been successful. Tome that means we need to find some new ideas to introduce and that’s somethingwe’re focused on very much on for 2008.

Thenext question is from Adrianne Shapira – Goldman Sachs. Adrianne Shapira – Goldman Sachs: Thanks.We’ve seen traffic being negative for a few quarters this year but it lookslike [ticket] this is the first quarter that it turned negative. Perhaps giveus a sense what’s going on there? I know that the shifts moving more intobetter and best has obviously been driving [ticket], can you just talk aboutthose categories that are seeing softness there as well.

Obviously something that affected the ticketfor this quarter was the weather with not selling a whole heck of a lot ofouter wear, long johns or sweaters, those tend to be higher retail than ournormal retail, so we definitely saw a big shift in mix in both September andparticularly in October. Adrianne Shapira – Goldman Sachs: And any sense in terms of again this shifttowards more into better and best, if you could talk about the health of peoplespending in those categories.

Better and best both improved as a percent ofour total business, as did updated and contemporary as well. I think theprimarily driver of a lower average transaction value in the quarter was themix of what we were selling and the impact of those cold-weather categoriesdefinitely hurt the overall transaction, it hurt the average unit retail. Ifyou look at the individual components, we saw a lift into better and best. Adrianne Shapira – Goldman Sachs: Okay that’s helpful. Then, if we think about’08 as we’re moving into clearly a tougher sales environment, just gives us asense what are you working on in terms of the expense structure to perhapslower or at what point can you start levering expenses, working to bring thatnumber down?

If you do the math on the fourth quarter, ourexpectations would be to leverage at around a flat count for the fourthquarter. We are currently working on our spring 2008 budgets and we’ll wrapthem up in the next few weeks, and we are attempting to try to leverage atlower than our historical comp, and working very closely advertising and storeswhich are the two primary consumers of our expense hours, and we’ll try toleverage on a comp that’s historically lower than they have been. Adrianne Shapira – Goldman Sachs: Great thank you.

The next question is from [Michelle Penn] – UBS. MichellePenn – UBS: I was wondering, I remember back in fourthquarter you had some shift with reclassifying some of the vendor ads support,helping gross margin and hurting SG&A, is that a factor at all in thequarter?

I think that was back in 2005, if I remember;that was that [fabulous DITF02-16] but that shouldn’t really affect our fourthquarter margin. As I mentioned earlier,we’re giving ourselves a lot of room to be very competitive in the fourthquarter. MichellePenn – UBS: The other question I had, there was somereference to being aggressive in terms of managing receipts and addressinginventory issues, obviously there’s been a lot of recent weakening and we’veheard from some other companies that with lead times where they are, it’sdifficult to get receipts in line until sometime in ’08 unless we see the salestrend improve. So, I was curious, your perspective on what you’re able to do,your flexibility versus everybody else with regard to lead times on orders.

Ican’t really comment on what everybody else’s ability to do that is, but Ibelieve you do know that for the last 2 ½ years that’s been one of your fourbig initiatives is inventory management, and that’s basically been all aboutmanaging receive flow closer to sales, so I think we’ve done a better job;we’re never going to be perfect; some goods do have long lead times and as aresult you are further out on them, but I think compared to where we were 2years ago, certainly compared to where we were 4 or 5 years ago we have anentirely different process, strategy, and really systems support to do so, so Iactually feel pretty good about the way inventories are being managed and theway receipts are being adjusted. I thinkit’s showing up in the numbers. MichellePenn – UBS: Myfinal question was, you made mention of the fact that part of the reason whyinventories are up so much at the end of the quarter is obviously a timingissue. How should we think about thatwhen we look at inventory to payable ratio, because we’re trying to get asense, you know we’re hearing from you that the inventory is relatively fresh,and I guess looking at the inventory to payables ratio it seems that things aregetting a little more sale, so I guess there may be a better metric to thinkabout that with?

Frommy perspective you got to cut forward receipts right, so that’s not going to bein your payables and so that’s one driver of it, and one driver quite franklyof it is, we didn’t have a good sales quarter and our vendor partners camethrough with vendor support and that affects payables as well. MichellePenn – UBS: Veryhelpful. Thanks.

Yournext question comes from Robert Drbul – Lehman Brothers. Robert Drbul – Lehman Brothers: Good evening. Kevin, to go back to the grossmargin—sorry to beat it up—but when you think of the assumptions that you arelooking at into the fourth quarter, where do you think the risk is in a flatgross margin, when you look at the competitive environment and the inventorylevels. I mean where do you think youmight be more aggressive?

The short answer to that question is, we don’tsee a risk in that number; we wouldn’t have given it as a guidance if we feltit was. We’ve given ourselves room to ensure that we come in on that, and yetstill provide the kind of value promotionally that we need to provide. As I said, if you think about inventorymanagement, categories like the seasonal categories, really entering thequarter with essentially the same level as last year is a really good place tobe. And those are areas that you know Ithink are very at-risk and they do have a tendency if sales don’t happen to bemore draining. I think the fact that we’ve managed the levels down we were conservativein our planning to begin with is putting us in a good place. But we’ve builtinto that margin guidance what we think is necessary to promote aggressively toget share of wallet and so we feel pretty confident about it. Robert Drbul – Lehman Brothers: Just a question on Vera; how much data mininghave you done around new customers that you’ve drawn into the store on Vera andthe opportunity there?

To be honest with you, not a whole lot at thispoint, we’ve now had the product in our stores for about 45 days. We definitelylooked at the customer basket, we definitely have come away with the conclusionthat we’re both drawing new customers, [witness] that they are not on our filesbefore then and secondly, attracting more affluent customers that were in ourfiles, but down to the kind of level that I think you’re thinking about for thefuture, not yet, I think we want to seethe business continue to develop in the fourth quarter when there’s a lot moreconsumers in the stores and we’re going to use that information to reallystrategize against in spring, but every single number we look at, on bothSimplyVera Vera Wang and Food Network is very positive from a customerdemographic perspective. It’s doing exactly what we set out to do. Robert Drbul – Lehman Brothers: Just one final question on FILA: will you beediting other areas in sort of active wear; other brands out of that side ofthe business?

There will definitely be editing done inactive; I do believe that active, and I think you would probably agree, activeapparel and footwear is a growth category overall in the store. If you thinkabout the brands we carry in there, there are two really key brands and onespectacular brand in Nike that of course won’t be affected at all. We’re growing both Nike and Adidas at apretty good clip and will continue to do so even with the addition of FILA, butthere are other opportunities in there to cut, and then it will benefit fromthe fact that it’s a growth category. Robert Drbul – Lehman Brothers: Great. Good luck.

Thanks.

We’ll take our next question from Mark Miller - WilliamBlair. Mark Miller - WilliamBlair: A question on your plan for inventory, up low single-digitsper store at the end of the year. It seems that in times past that would beequivalent to a sales plan of two to four. I’m assuming that you’re expectingsales to be somewhat more moderate than that. Would you be looking at positivecomps at the start of 2008 if you could run the inventory the way you wantedit?

I think we’re being very conservative in our sales planningfor 2008. Our expectation is at some point the business will get better. If wedo better in sales in the fourth quarter, obviously we’ll have less inventoryat the end of the fourth quarter. I think the theme of the day for the fourth quarter -- if ithasn’t come through clearly at this point -- is we’re being very, veryconservative about what could happen in the fourth quarter and hopefully, businesswill improve as the weather gets cooler. We’ll be able to do a little bitbetter than we anticipated. But right now this is the run rate of our business,and given that run rate this is what be we think we can achieve. Mark Miller - WilliamBlair: I guess it’s probably somewhat obvious at this point, butcould you just comment on where we are in November? It sounds like you will besomewhat lower than you wanted to be.

We’re not going to comment on the current business, butobviously our business is very seasonally related and with the weather gettingcolder, usually things get better. Mark Miller - WilliamBlair: You did talk about share repurchase in the third quarter. Iknow it doesn’t impact it dramatically right away, but how should we thinkabout share repurchase going forward?

Normally we try not to give you any guidance on that. All ofour guidance is based upon no share repurchase assumed and so that’s what ourguidance is based upon. We’ll make a decision in the next few days as towhether or not we’re going to buy back shares. We’ll have to file a plan as webasically are blocked out of trading windows until we report fourth quarterearnings after Thanksgiving.

Your next question comes from Liz Dunn - Thomas WeiselPartners. Liz Dunn - ThomasWeisel Partners: What’s behind the reduction in guidance for store openingsin 2008? Can you talk in a little bit more detail about how you’vechanged in the last four years? Obviously there’s a lot more process in placeversus 2003 when you had a comp slowdown. But maybe if you could address whatyou didn’t do then that you are doing now? What you would have done then if youhad the same process and a little bit better mindset in place, if that makessense?

We haven’t adjusted our guidance for stores for next year.We’re on plan as we discussed in our investor conference at the beginning ofOctober. We’re going to be at the end of 2012 over 1,400 stores. That’s goingto fluctuate a little bit by year based on a lot of different things going onout there. Liz Dunn - ThomasWeisel Partners: So what’s the 90? 90 is what you have signed for now, but isit possible that we could get to 100?

I don’t think that we’re prepared to comment on that. Wedon’t have a definite number in mind. We’re just being opportunistic and makingsure we’re able to take advantage of all the opportunities that show up outthere. But we’re very comfortable with our long-range plan. As you recall overthe past three years, we’ve had some lower years and some higher years andstill ended up being exactly where we said we were going to be.

Liz, on the inventory thing I think first of all you knowthat five years ago we made inventory management one of our four keyinitiatives to focus on. When we did that, we pretty dramatically increased thestructure of the planning and allocation organizations both in terms of numbersand strength. We also implemented a whole series of technology enhancementsincluding things that you’re seeing that come to fruition in the last coupleyears, like markdown optimization or size optimization. But most importantly, we started down a path of working tocontinue to reduce our cycle times across the whole store so that we could do abetter job flowing receipts closer to sales, less upfront, more as we neededit. I think it’s allowed us to moreeffectively manage our inventories and our business in a way that we justcouldn’t have done four or five years ago. We didn’t have either the capabilityand people or the skillset or even the technology to do. We’re just in adifferent place today. Having said that, all of us would tell you we haveopportunity to improve in that regard. I’m never happy with the way we’re managingour inventories. I think we’ve got a lot of room to improve there. We’re goingto continue to focus on it next year, but we’re doing a much better job than weever have before. Liz Dunn - ThomasWeisel Partners: Can you comment, has the business improved with betterweather? Because I think all of us are having a hard time figuring out how muchof this is weather and how much is consumer.

So are we. You know, Liz, we don’t comment on businessduring the month but you’ve seen what happened to our business when weatherchanges for a lot of years.

We’ll take our next question from David Cumberland - RobertBaird. David Cumberland -Robert W. Baird: Kevin, can you talk about any holiday season specificin-store merchandising initiatives, either related to in-aisle displays orelsewhere?

In terms of opportunities I think the two key categories wecalled out that I’m really excited about, both because of the trend of businessfor the year and the trend that actually, to be honest with you, accelerated inthe third quarter are jewelry and beauty. Within beauty, particularly finefragrance. I think you know fine fragrance is a category we dramaticallyexpanded. As we enter the fourth quarter, both of those businesses’penetration as a percent of our store climbs pretty dramatically. Both of thosecategories, if you look at our table and tower programs in the store are muchmore aggressively merchandised. Our inventory levels are up compared to lastyear, and that’s working for us. We think that’s a big upside potential for usin the fourth quarter. The other thing would be our new initiatives. Consistently,the Vera Wang initiative, the Food Network initiative and the Elle expansioninitiative are working, and I think they’re going to contribute to a greaterdegree in the fourth quarter as well. David Cumberland -Robert W. Baird: On the monthly comps guidance for November and December, isthe difference versus the full quarter plan entirely due to the calendar shift?

Yes. David Cumberland -Robert W. Baird: Wes, to clarify on the buybacks, it sounds like you might beestablishing a 10b-5 type plan that will allow buybacks after Thanksgiving?

That would be correct.

Your next question comes from Steve Kernkraut - BermanCapital. Steve Kernkraut -Berman Capital: In inventory, I guess you guys are comfortable with whatyou’re seeing, where even though the inventories are up 7% on a per-storebasis, 20% overall, you guys still think you can get flat margins based on howyou assess the world out there?

The short answer is yes. I think honestly the way you’ve gotto think about that inventory is, we knew all along we were going to be midsingle-digits up to last year in inventory. That was early, way before thethird quarter started. That was because of the calendar shift. The way I look at the inventories is more on ayear-over-year calendar date basis, what do our inventories look like? Thoseare up basically 2%. In the categories in which you have to manage risk moreaggressively, seasonal categories, they’re essentially flat to last year. So a lot of our margin guidance, being flat to last year, isabout us being aggressive to get market share. It’s not about clearinginventories out that we’re too heavy in. It’s more about getting sales. Steve Kernkraut -Berman Capital: You obviously listen to what Penney is saying, what Macy’sis saying what everyone else is saying that they’re going to be highly, highlypromotional and do everything possible. That’s all factored into your game planwhere you’re going to be competitive price for price, promotion for promotion,whatever?

It’s not even about what they say. I mean, I think we’vewatched with the promotional activity in the third quarter and that’s becomemuch more heated. That’s just a fact and so we’ve got to be prepared to do soas well. Steve Kernkraut -Berman Capital: Because the way you describe it, there doesn’t seem to be adown side to it, only the upside. If the consumer’s better, we’ll have upsideto your numbers. But the way you described it, you’ve been very conservative,creating almost a worst-case scenario in terms of what your margins are.

We think our margins are going to be flat to last year.

We’ll take our next question from Bernard Sosnick -Oppenheimer. Bernard Sosnick -Oppenheimer: I know you’re working on your plans for ‘08 and I don’t meanto get too specific, but the first quarter as you look at it, would there beopportunities in terms of the merchandise assortment that you’re going to haveversus a year ago to improve gross margins, assuming that inventory controlsare as careful as you expect to have them?

We’re not talking about 2008. Obviously we’re working on itinternally, but we’re focused on achieving and exceeding our guidance for thefourth quarter. When the fourth quarter happens and we get more informationabout consumer behavior, we’ll share with you our view on 2008. We’redefinitely looking at it conservatively. I think that’s the smart thing to doright now, but we’re not prepared to talk about our view about the spring of2008 yet. Bernard Sosnick -Oppenheimer: Well, let me ask in a different way. You were very savvy interms of your foresight with respect to seasonal inventories. Spring is usuallya shorter season, more volatile in terms of when the weather changes. So interms of planning conservatively, could you just give us an idea withouttalking about gross margins of how you’re going about thinking of conservativeplanning other than just containing the inventories?

That was well said, Bernie. The spring season is even morevolatile from a weather perspective than the fall season. I think that’s how we’re approaching ourinventory planning, particularly on seasonal categories. We’re trying to besmart about it and not put ourselves in a risk position and then chase thebusiness as it happens, if it happens. If it doesn’t, we’re going to be in agood place. I think that’s how we’relooking at spring.

Yes, in terms of merchandise categories, SimplyVera, VeraWang, Food Network and Elle will all be new for spring.

Your next question comes from Richard Jaffe - StifelNicolaus. Richard Jaffe -Stifel Nicolaus: I think you guys have done a good job addressing the marginand inventory issues. Just one follow-on question in terms of marketing. Isthere some powder dry to spend more on marketing, whether it’s direct mail orTV or radio? If things are incrementally tougher than you thought, is there anypowder kept dry on the marketing side?

Well, there’s always some contingency factor. But I meanthere’s certainly nothing that I can think of too much that was positive aboutthe third quarter, with one exception, the fact that the third quarterdeveloped slowly from a sales standpoint put us in a position to be upfrontand aggressive in our plans. We kind oftalked about that in the call; increasing direct mail, particularly around ourcredit card portfolio, increasing broadcast around our big events. I think the one thing we were able to do is be proactive infront, which was a smarter way of doing it than an emergency basis at the lastminute. I think we feel like we’ve putthose plans in place already. There’s always still a little bit of flux andflux you can do, but we feel pretty good with what we have in place right now.

We’ll take our next question from Michael Exstein - CreditSuisse. Michael Exstein -Credit Suisse: You ran a beauty promotion a couple weeks ago. Can you talkabout that, what the response was? You added some sales help and direct mail. Can you give us an idea how you’re balancing your increasingpenetration -- exclusive brand and private label -- with the gross marginissue? Is there so much gross margin if you act fast enough, if not is it adetriment that we might see on the upside? Thanks.

On the beauty thing, and this is more of a general statementthan a specific one, but generally we’ve had good results when we’veintensified it has helped in our stores around specific events. So not in thegeneral rule, but when we know we have a big opportunity around a big event,intensifying the marketing on beauty has clearly helped sales. That’s for sure.I’m not sure, to be honest with you, Michael, I understand the second part ofthat. If you can maybe repeat it, on the private and exclusive brands? Michael Exstein -Credit Suisse: I think many of us are somewhat concerned that as the wholeindustry -- yourselves included -- have increased exclusive and private labelmerchandise as a percent of the assortment that in any slowdown it perhapscould be more detrimental to margins than nationally branded goods, and howyou’re dealing with that. Is there so much gross margin you react earlier, thatyou don’t have that potential?

I don’t think about them any differently than I do thenational brands. I view them the same interms of how we manage our margin opportunity. It’s all about building receiptflows that we can adjust. Certainly in some private brand categories, thereceipt timelines are a little longer. Some of the exclusive brands not so much. But it’s moreabout building the organization and the structure and the systems to manage theoverall receipt flows. I don’t really see it as a big difference. We have thesame challenges with our partners, with our brands, that we do with ourexclusive brands and our private brands as well. We kind of have one strategythat we apply to all of those elements.

We’ll take our next question from David Glick - BuckinghamResearch. David Glick -Buckingham Research: A question on the men’s business; that’s a business thatincreases in importance pretty significantly in the fourth quarter,particularly December. It sounds like it has weakened relative to the successyou were having earlier in the year. Also it seems like there are not as manyexciting new brand initiatives as you’re seeing in home and in women’s andaccessories. Can you comment on some signs of life there that maybeyou’re seeing recently, with the weather change? Is there a reason to be moreoptimistic about that key fourth quarter business?

Sure. I mean, men’s is actually in a negative environment inthe third quarter, I would say, but in that negative environment men’s did dobetter than the store did. So they continued to do better in the third quarterthan the store did. On the year basis, they are also doing better than thestore did, just to get one thing clear. They clearly are outperforming thestore. Number two, casual sportswear in men’s was actually verystrong. That’s in the face of some pretty tough numbers in categories likesweaters and fleece and outerwear. So we’ll see if the weather turns in ourfavor in the fourth quarter, but I think overall we feel pretty good about themen’s performance. It has outpaced the company and continues to outpace thecompany.

Our final question comes from Deborah Weinswig - Citi. Deborah Weinswig -Citi: In terms of your credit card portfolio, could you just talkabout the experience that you saw there during the quarter?

I would say, like other guys that have reported, obviouslyour share has increased quite a bit over the last year. I think it’s probablythe most significant share increase we’ve had in a couple of years. In terms of revenue, we’re seeing good increases there. Ourbad debt expense, though it’s not really on our books, it did uptick a littlebit in the third quarter, but nothing alarmingly. On a year-to-date basis we’reactually below our plan in bad debt. I don’t think that is going to be an issuefor us going forward. I would expect it to rise a little bit, but notsignificantly. Deborah Weinswig -Citi: Kevin, you spoke a little bit earlier on the call aboutbeauty. Can you elaborate a little bit more in terms of the strength that yousaw there during the quarter?

The fragrance part of the overall beauty business wasspectacular, but it’s been spectacular all year. I think you know we expandedit quite a bit. We essentially doubled the scale or the footprint in ourstores. That continues to perform really, really well. We’re pretty optimisticabout that for the fourth quarter given the importance of that to consumers atholiday. But the core beauty business also was positive again. Compfor the third quarter, which we feel really good about, it continues to dobetter than the store and do better than the categories around it. So it’s notjust about fragrance. It’s the overall beauty business did very well, inaddition. Deborah Weinswig -Citi: Can you also talk about the early response to holiday?

No. I don’t think so. Deborah Weinswig -Citi: Can you even just talk about what you saw through the end ofthe quarter?

That’s a better way to phrase it, Deb. Thank you. It’s hardto find a lot of positive things in a quarter in which we had a negative 2.6comp or a negative 3.8 inOctober. But there were clearly things that customers loved. Those are thingswe’re trying to build on, we just talked about a couple of them. I can’t emphasize enough the jewelry piece. Jewelry has beenstrong all year. Jewelry way outpaced the company in the third quarter, again.We feel we’ve got a really good strategy in jewelry, both in case and out ofcase, on table and tower for the fourth quarter. It’s a business opportunityfor us. It’s a market share opportunity for us. So those are things we definitely saw, and that was true inOctober as well, Deb, that jewelry did very, very well in October. So there aregood things, the brands we’ve talked about, SimplyVera has been spectacular andthe Food Network thing has been spectacular as well so there are definitelypositives. There’s no question about it. Deborah Weinswig -Citi: Great, thanks so much, and best of luck for holiday.

Thanks.

Thanks a lot, everybody.

That concludes today’s conference.