With the rollout of the new POS terminals, would there be increase of referral sales? What are your future expectations with the POS terminals?

The management definitely has high expectations and 70% of the associates are now trained and know how to use the POS device. Referrals are a complicated topic for various reasons but installing new tools makes it easier for the associates to better help the customer and the management is therefore optimistic about referrals, going forward.

Are there any structural limitations to opening Sephora boutiques in the next 12 months?

There were three tests conducted after making the decision to start the supporter store program. Firstly, the company wanted to establish whether it could build a store of quality that people would give it credit for having a real Sephora inside J.C. Penney. Secondly, it needed to ascertain whether it could land the right merchandise in terms of the best-sellers that customers would react to. Thirdly, it had to test whether it could train its associates to sufficient levels in order to service the customer at a level Sephora was currently executing. The early indications make the firm feel positive about all the three areas. The firm feels so because the inside of the J.C. Penney store is indistinguishable in terms of look, feel and animation. The presentation is meant to bring the necessary impact and customers love it. Additionally, the company does have the best sellers and it has met the top vendor at Sephora to make sure they understood the vision on why the firm thinks beauty is so important in our store. The management is happy with the assortment and the vendors are very pleased with the early response. Lastly, the firm has an extensive training program for its associates and this has helped it compete favorably with the Sephora free-standing sales associates. The reason the firm is taking its time is it wants to ensure that it does not disappoint on those issues going forward. The firm will open a number of new stores this year in existing locations as well as in the new stores and it will accelerate in 2008.

Part of CTR involves narrowing manufacturers you source with and number of countries you source from. What has been the position in the last five years and what is the future outlook?

The company has significantly reduced the number of factories that it does business with and it sees the same trend going forward. At the present moment, the firm is reducing by about 20% to 30% the number of different factories it has done business with from several years ago. Going forward, the management sees strengthening the larger factories it is currently working with. In terms of countries, the firm has reduced the countries and will continue to focus on the Far East countries.

Is the minor first quarter gross margin improvement likely to increase for the rest of the year and what is the cause?

The firm’s objective is to improve operating profit every day and it has a plan for that. The fourth quarter is the highest profit quarter in terms of volume. The firm is aggressive towards gross margin opportunities and it also recognizes the SG&A opportunity to leverage as it gets new stores. The firm has opened 50 new stores in the last three years and it plans to open more and this will help leverage its expense. The firm also re-engineers its support expenses in a way that it provides necessary staff hours for the available customers. The company is trying to make the shopping experience differentiated as much as possible against its discount competitors and at the same time earn the respect through people shopping in higher-tier department stores.

Have you started to see cost inflation on your private branding?

Having been in Asia for 50 years, one competitive advantage the company team has gained is the ability to balance sourcing by country and by manufacturer. The company has about 45% in private brand business. The company has the competitive advantage and one good example being a new private brand that realized $300 million in its first year. It is difficult to project costs beyond 2007 but J.C. Penney is comfortable with the current costs.

What is the expected potential from the American Living brand in terms of sizes, volumes etcetera?

The company is going to be aggressive about roll out in one year across all categories. It is important to be able to make a statement about the overall brand, integrity, brand attributes and lifestyle presented by the brand. The revenue in the first year can potentially be greater than $300 million and the brand should be successful in its first year. This will be the biggest brand ever launched.

Will it be to customers that American Living is a Polo brand?

It will be clear to customers in terms of its outstanding features and it should be quite distinct from others. There is no secret that Polo Ralph Lauren Corporation probably has the finest design capability, execution and industry track record.

You mentioned that the bulk of the gross margin improvement was from changes in store sync and merchandise flow. Can you shed more light on this matter?

The majority of the increase was not from sourcing but from better management flow of merchandise, the ability to have the right goods, processes being applied, ability to improve the sizing and the ability to begin seeing benefits from the improved cycle time. All these elements, added to sourcing, led to the improved gross margin. The private brand has grown faster than the national brand and this is another source of gross margin improvement.

Looking at traffic versus tickets, traffic seems to have been a big driver of your same store sales over the last several years. Going forward, do you anticipate more even split in terms of contribution to comp? Can you update us on the productivity of the off-mall stores? What are the same store inventory levels for the year end?

There are opportunities in retail but the transactions haven’t been the main driver. Higher earnings potential exists with the private brands, for example AIM. The sell through initial reaction to the product has been very strong and this is a result of great styling, terrific quality and improved prices. Going forward, there is likely to be more balance than in the past.

In terms of off-mall productivity, most retailers that remodel fall short of expectations and there is always a gap between the approved CapEx and ultimate results. J.C. Penney has been an exception in the last five years where initial estimates have been exceeded. Productivity goals remain unchanged and there are stores that can do better. When a new stored is opened at a mall that also opening for the first time, there is a notable remarkable surge in business. There is reason to be confident when analyzing the reaction of customers to the off-mall format. The company is viewed as a department store with a great mix of national and private brands. J.C. Penney’s positioning is complimentary to the mall positioning and the company wouldn’t be opening 50 new stores a year if there was no confidence in terms of productivity improvement.

The company is up low singles in the same store inventory. Going forward, the target is to grow the same store inventory increase at about half the sales increase.