CORAL SPRINGS, Fla.,
April 26, 2017 /PRNewswire/ -- The
following is a letter from Kanen Wealth Management LLC to the board
of New York & Company (NYSE:
NWY):
April 26, 2017
New York & Company
330 W. 34th St., 9th Floor
New York, NY 10001
Dear NWY Board of Directors and Executive Management,
We are writing to highlight the losing record of the board of
directors and company management. We want to formally express our
view that the results of the company and the share price have been
awful. The status quo is unacceptable; only a few people at the top
are benefiting from representation, while minority shareholders are
suffering at the bottom.
Over the last five months, through private discussions with
company management and the board, we have attempted to amicably
effect positive change at New York
and Company and are deeply frustrated with management's lack of
action and results to date. Maybe you view our 5% stake, as well as
other larger shareholder's ownership, less significant than Irving
Place Capital's ownership and not worthy of a seat at the
table.
We intend to vigorously represent ourselves, and perhaps other
non-Irving Place shareholders feel the same way.
Let us summarize the scorecard of events over the past 4
years:
1) Stock performance on a relative
basis - In July of 2013 our stock was approximately $6.72 a share. Currently the stock trades at
approximately $1.80 a share; this
represents approximately a 73% decline in value. During the same
timeframe our benchmark, XRT (S&P Retail ETF), is up 6.87%
before dividends. Over this period of 73% decline in stock price,
executive management has received modest base salary increases.
2) Four years ago, in calendar
2013 (FY14), our gross margin (GM) was 28.15%, our selling,
general, and administration expenses (SG&A) as a percentage of
total sales were 27.82% leaving us with an operating margin of
0.33%.
3) If we fast forward 4 years to
calendar year 2016 (FY17), our GM was 28.41% and SG&A as a
percentage of total sales was 30.07% leaving us with a negative
operating margin of 1.66%. Advisory services offered through Kanen
Wealth Management, LLC, a State of
Florida domiciled Investment Advisory firm. We also conduct
business in States of New York,
Pennsylvania and Texas.
During the aforementioned 4-year period, management has guided
for an engagement in cost saving initiatives in SG&A and COGS
to maximize profits and expand margins. These initiatives, however,
have failed to translate to the company's earnings performance.
During this period, the companies operating margins declined from
33 bps to negative 166 bps. Unfortunately, the numbers speak for
themselves.
4) Below are some quotes from
earnings calls dating back 4 years that demonstrate management and
the boards failure to execute:
a) March
2013 - "In addition, buying and occupancy costs decreased
by 180 basis points as a percentage of net sales, largely due to
the company's continued focus on cost savings and reduced rent
expenses." "So it's really a combination of the 3 channels
of our business that will get us back to that peak operating margin
in the high single digits."
b) December
2014 - "In connection with our analysis, we recently
initiated an organizational realignment, which included the
elimination of numerous positions in our corporate offices. As a
result of the organizational changes made, we expect to save
$9 million to $10 million in
expenses, $1.5 million of which will
be realized in the fourth quarter of fiscal year 2014."
c) August
2015 - "Turning to Project Excellence, our productivity
initiative. As you know, our goal of Project Excellence is to
improve our overall operational efficiency and productivity. At the
same time, increase gross margin and mitigate expense increases and
investments and growth areas of our business. As previously
announced, we launched a comprehensive business reengineering
project in late 2014, and we now expect Project Excellence to
produce savings of approximately $30
million on an annualized basis, which has been revised
upward from our prior estimate of $20
million to $25 million."
d) December
2015 - "So ultimately, our target goal over a longer
period of time is to get back to the high single digit operating
margins."
e) March
2016 - "From a bottom line benefit, we continue to expect
Project Excellence to produce an estimated $15 million in savings in 2016 on top of the
savings already achieved in 2015."
f) May
2016 - "We continue to be pleased with the success of
Project Excellence to date. And while we are excited that these
savings begin flowing through directly to our bottom line in 2016,
we still remain very focused on identifying new opportunities to
reduce costs, increase our speed to market, increase efficiency and
improve profitability." Advisory services offered through Kanen
Wealth Management, LLC, a State of
Florida domiciled Investment Advisory firm. We also conduct
business in States of New York,
Pennsylvania and Texas.
Gross Margins are unacceptable!
Here are gross margins for some of New
York & Co.'s peers:
- ASNA, 57.98%
- FRAN, 46.93%
- CATO, 37.07%
- CHS, 38.23%
- NWY at the bottom with a GM of 28.41%.
Unacceptable!
Recommended Actions:
1) One new independent board
member.
2) The formation of a special
committee of independent directors that represents minority
shareholders (non-management, non-Irving Place or have never worked
at Irving Place) who's responsibility will be to conduct an
in-depth, comprehensive review of NWY's operations for the purpose
of maximizing gross profit and saving on SG&A. Currently, there
are 3 board members that work or have worked at Irving Place
Capital. We believe this would be an exercise of "best practices"
for corporate governance. This in-depth review would satisfy and
alleviate any concerns minority shareholders have regarding their
representation. It will also show us the company is doing
everything in its power to achieve its operating margin
targets.
3) An enhanced capital allocation
strategy that returns more cash to shareholders.
We would like to highlight the many positives NWY has potential
to build upon:
1) Our enterprise value is only
$39 million.
2) Our enterprise value is only 4%
of revenue.
3) The growth potential of
Eva Mendes and Gabrielle Union.
4) The balance sheet has over
$76 million in net cash ~
$1.20 per share.
5) Our revised private label
credit card deal which should generate $10-11 million in incremental high margin
royalties this year.
6) A solid brand.
7) A majority of the leases are
less than 1-2 years.
8) Tailwinds and opportunities
from competitors closing stores.
9) The potential to drive gross
margins higher (currently, well below peer group). Advisory
services offered through Kanen Wealth Management, LLC, a
State of Florida domiciled
Investment Advisory firm. We also conduct business in States of
New York, Pennsylvania and Texas.
10) Loyal customer base with over
40% of sales coming from private label credit card.
11) Dedicated employees at the
store level.
In summary, we are calling for: board representation that gives
non-Irving Place Capital shareholders a true seat at the table;
formation of a special committee, which is truly independent, that
will conduct an in-depth review of operations to drive GM's up and
SG&A expenses down; and an enhanced capital allocation
strategy.
A very wealthy shareholder at the top has been amply represented
for years; we believe minority shareholders deserve appropriate
representation!
Sincerely,
Dave Kanen
President, Portfolio Manager
Kanen Wealth Management, LLC
Philotimo Fund, L.P.
P: (631) 863-3100
E: dkanen@kanenadvisory.com
Advisory services offered through Kanen Wealth Management, LLC,
a State of Florida domiciled
Investment Advisory firm. We also conduct business in States of
New York, Pennsylvania and Texas.
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SOURCE Kanen Wealth Management LLC