ITEM 1. FINANCIAL STATEMENTS
New York & Company, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
|
|
|
|
|
|
|
|
(Amounts in thousands, except per share amounts)
|
|
Three months
ended
May 4, 2013
|
|
Three months
ended
April 28, 2012
|
|
Net sales
|
|
$
|
227,483
|
|
$
|
227,736
|
|
Cost of goods sold, buying and occupancy costs
|
|
|
161,149
|
|
|
163,186
|
|
|
|
|
|
|
|
Gross profit
|
|
|
66,334
|
|
|
64,550
|
|
Selling, general and administrative expenses
|
|
|
65,117
|
|
|
64,626
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
1,217
|
|
|
(76
|
)
|
Interest expense, net of interest income of $2 and $3, respectively
|
|
|
89
|
|
|
90
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
1,128
|
|
|
(166
|
)
|
(Benefit) provision for income taxes
|
|
|
(466
|
)
|
|
45
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
1,594
|
|
$
|
(211
|
)
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
0.03
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
$
|
0.03
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
Basic shares of common stock
|
|
|
61,970
|
|
|
61,302
|
|
|
|
|
|
|
|
Diluted shares of common stock
|
|
|
62,704
|
|
|
61,302
|
|
|
|
|
|
|
|
See
accompanying notes.
New York & Company, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
|
|
|
|
|
|
|
|
(Amounts in thousands)
|
|
Three months
ended
May 4, 2013
|
|
Three months
ended
April 28, 2012
|
|
Comprehensive income (loss)
|
|
$
|
1,642
|
|
$
|
(164
|
)
|
|
|
|
|
|
|
See
accompanying notes.
1
Table of Contents
New York & Company, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
(Amounts in thousands, except per share amounts)
|
|
May 4,
2013
|
|
February 2,
2013
|
|
April 28,
2012
|
|
|
|
(Unaudited)
|
|
(Audited)
|
|
(Unaudited)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
39,471
|
|
$
|
60,933
|
|
$
|
29,481
|
|
Accounts receivable
|
|
|
14,607
|
|
|
8,216
|
|
|
11,228
|
|
Income taxes receivable
|
|
|
484
|
|
|
488
|
|
|
475
|
|
Inventories, net
|
|
|
84,701
|
|
|
80,198
|
|
|
97,413
|
|
Prepaid expenses
|
|
|
22,287
|
|
|
21,467
|
|
|
21,398
|
|
Other current assets
|
|
|
1,011
|
|
|
954
|
|
|
1,091
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
162,561
|
|
|
172,256
|
|
|
161,086
|
|
Property and equipment, net
|
|
|
91,944
|
|
|
97,960
|
|
|
112,408
|
|
Intangible assets
|
|
|
14,879
|
|
|
14,879
|
|
|
14,879
|
|
Deferred income taxes
|
|
|
6,695
|
|
|
6,755
|
|
|
4,361
|
|
Other assets
|
|
|
798
|
|
|
830
|
|
|
929
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
276,877
|
|
$
|
292,680
|
|
$
|
293,663
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders' equity
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
66,227
|
|
$
|
74,410
|
|
$
|
69,924
|
|
Accrued expenses
|
|
|
43,791
|
|
|
51,158
|
|
|
53,514
|
|
Income taxes payable
|
|
|
610
|
|
|
989
|
|
|
3,043
|
|
Deferred income taxes
|
|
|
6,695
|
|
|
6,755
|
|
|
4,361
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
117,323
|
|
|
133,312
|
|
|
130,842
|
|
Deferred rent
|
|
|
47,085
|
|
|
48,834
|
|
|
56,748
|
|
Other liabilities
|
|
|
3,696
|
|
|
4,282
|
|
|
4,959
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
168,104
|
|
|
186,428
|
|
|
192,549
|
|
Stockholders' equity:
|
|
|
|
|
|
|
|
|
|
|
Common stock, voting, par value $0.001; 300,000 shares authorized; 64,106, 63,884 and 63,392 shares issued and 63,106, 62,884 and 62,392 shares
outstanding at May 4, 2013, February 2, 2013, and April 28, 2012, respectively
|
|
|
64
|
|
|
64
|
|
|
62
|
|
Additional paid-in capital
|
|
|
167,781
|
|
|
166,902
|
|
|
164,113
|
|
Retained deficit
|
|
|
(53,027
|
)
|
|
(54,621
|
)
|
|
(56,932
|
)
|
Accumulated other comprehensive loss
|
|
|
(2,648
|
)
|
|
(2,696
|
)
|
|
(2,732
|
)
|
Treasury stock at cost; 1,000 shares at May 4, 2013, February 2, 2013 and April 28, 2012
|
|
|
(3,397
|
)
|
|
(3,397
|
)
|
|
(3,397
|
)
|
|
|
|
|
|
|
|
|
Total stockholders' equity
|
|
|
108,773
|
|
|
106,252
|
|
|
101,114
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity
|
|
$
|
276,877
|
|
$
|
292,680
|
|
$
|
293,663
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
2
Table of Contents
New York & Company, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
|
|
|
|
|
|
|
(Amounts in thousands)
|
|
Three months
ended
May 4, 2013
|
|
Three months
ended
April 28, 2012
|
|
Operating activities
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
1,594
|
|
$
|
(211
|
)
|
Adjustments to reconcile net income (loss) to net cash used in operating activities:
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
9,012
|
|
|
8,735
|
|
Amortization of deferred financing costs
|
|
|
30
|
|
|
30
|
|
Share-based compensation expense
|
|
|
1,057
|
|
|
1,108
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(6,391
|
)
|
|
(3,959
|
)
|
Income taxes receivable
|
|
|
4
|
|
|
2
|
|
Inventories, net
|
|
|
(4,503
|
)
|
|
(16,085
|
)
|
Prepaid expenses
|
|
|
(820
|
)
|
|
(341
|
)
|
Accounts payable
|
|
|
(8,183
|
)
|
|
(2,373
|
)
|
Accrued expenses
|
|
|
(7,367
|
)
|
|
(1,632
|
)
|
Income taxes payable
|
|
|
(379
|
)
|
|
(21
|
)
|
Deferred rent
|
|
|
(1,749
|
)
|
|
(379
|
)
|
Other assets and liabilities
|
|
|
(819
|
)
|
|
(382
|
)
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(18,514
|
)
|
|
(15,508
|
)
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(2,996
|
)
|
|
(5,863
|
)
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(2,996
|
)
|
|
(5,863
|
)
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
48
|
|
|
65
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
48
|
|
|
65
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(21,462
|
)
|
|
(21,306
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
60,933
|
|
|
50,787
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
39,471
|
|
$
|
29,481
|
|
|
|
|
|
|
|
See accompanying notes.
3
Table of Contents
New York & Company, Inc.
Notes to Condensed Consolidated Financial Statements
May 4, 2013
(Unaudited)
1. Organization and Basis of Presentation
New York & Company, Inc. (together with its subsidiaries, collectively the "Company") is a leading specialty retailer of women's fashion apparel and accessories, and the
modern wear-to-work destination for women, providing perfectly fitting pants and NY Style that is feminine, polished, on-trend and versatile. The Company's
proprietary branded New York & Company® merchandise is sold exclusively through its national network of retail stores and eCommerce store at
www.nyandcompany.com
. The target customers for
the Company's merchandise are fashion-conscious, value-sensitive women between the ages of 25 and 45. As
of May 4, 2013, the Company operated 519 stores in 43 states.
The
condensed consolidated financial statements as of May 4, 2013 and April 28, 2012 and for the 13 weeks ("three months") ended May 4, 2013 and
April 28, 2012 are unaudited and are presented pursuant to the rules and regulations of the United States Securities and Exchange Commission ("SEC"). Accordingly, these unaudited condensed
consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the 53-week fiscal year ended February 2,
2013 ("fiscal year 2012"), which were filed with the Company's Annual Report on Form 10-K with the SEC on April 16, 2013. The 52-week fiscal year ending
February 1, 2014 is referred to herein as "fiscal year 2013." The Company's fiscal year is a 52- or 53-week year that ends on the Saturday closest to January 31.
In
the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary to present fairly
the financial condition, results of operations and cash flows for the interim periods. All significant intercompany balances and transactions have been eliminated in consolidation.
Due
to seasonal variations in the retail industry, the results of operations for any interim period are not necessarily indicative of the results expected for the full fiscal year.
2. New Accounting Pronouncements
In July 2012, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2012-02, "Testing Indefinite-Lived Intangible Assets for
Impairment" ("ASU 2012-02"), which amends FASB Accounting Standards Codification ("ASC") Topic 350, "IntangiblesGoodwill and Other" to permit an entity to
first assess qualitative factors to determine if it is more likely than not that an indefinite-lived intangible asset is impaired and whether it is necessary to perform the impairment test of
comparing the carrying amount with the recoverable amount of the indefinite-lived intangible asset. This guidance is effective for interim and annual impairment tests performed in fiscal years
beginning after September 15, 2012, with early adoption permitted. The adoption of ASU 2012-02
on February 3, 2013 did not have a material impact on the Company's financial position or results of operations.
In
February 2013, the FASB issued ASU 2013-02, "Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income" ("ASU 2013-02"), which sets forth
additional disclosure requirements for items reclassified out of accumulated other comprehensive income and into net income that will be effective for annual reporting periods beginning after
December 15, 2012. The adoption of ASU 2013-02 on February 3, 2013 did not have a material impact on the Company's financial position or results of operations.
4
Table of Contents
New York & Company, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
May 4, 2013
(Unaudited)
3. Earnings Per Share
Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding for the period. Except when the effect
would be anti-dilutive, diluted earnings (loss) per share is calculated based on the weighted average number of outstanding shares of common stock plus the dilutive effect of share-based
awards calculated under the treasury stock method. A reconciliation between basic and diluted earnings (loss) per share is as follows:
|
|
|
|
|
|
|
|
|
|
Three months
ended
May 4, 2013
|
|
Three months
ended
April 28, 2012
|
|
|
|
(Amounts in thousands,
except per share amounts)
|
|
Net income (loss)
|
|
$
|
1,594
|
|
$
|
(211
|
)
|
Basic earnings (loss) per share
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
Basic shares of common stock
|
|
|
61,970
|
|
|
61,302
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
0.03
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
Basic shares of common stock
|
|
|
61,970
|
|
|
61,302
|
|
Plus impact of share-based awards
|
|
|
734
|
|
|
|
|
|
|
|
|
|
|
Diluted shares of common stock
|
|
|
62,704
|
|
|
61,302
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
$
|
0.03
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
The
calculation of diluted earnings (loss) per share for the three months ended May 4, 2013 and April 28, 2012 excludes the share-based awards listed in the following table
due to their anti-dilutive effect as determined under the treasury stock method:
|
|
|
|
|
|
|
|
|
|
Three months
ended
May 4, 2013
|
|
Three months
ended
April 28, 2012
|
|
|
|
(Amounts in thousands)
|
|
Stock options
|
|
|
550
|
|
|
1,181
|
|
Stock appreciation rights(1)
|
|
|
2,701
|
|
|
3,272
|
|
Restricted stock and units
|
|
|
109
|
|
|
814
|
|
|
|
|
|
|
|
Total anti-dilutive shares
|
|
|
3,360
|
|
|
5,267
|
|
|
|
|
|
|
|
-
(1)
-
Each
stock appreciation right ("SAR") referred to above represents the right to receive a payment measured by the increase in the fair market value of one
share of common stock from the date of grant of the SAR to the date of exercise of the SAR. Upon exercise the SARs will be settled in stock.
5
Table of Contents
New York & Company, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
May 4, 2013
(Unaudited)
4. Share-Based Compensation
The Company accounts for all share-based payments in accordance with FASB ASC Topic 718, "CompensationStock Compensation" ("ASC 718"). ASC 718 requires that the cost
resulting from all share-based payment transactions be treated as compensation and recognized in the consolidated financial statements.
The
Company recorded share-based compensation expense in the amount of $1.1 million for both the three months ended May 4, 2013 and April 28, 2012.
During
the three months ended May 4, 2013, 69,829 shares of common stock were issued upon exercise of previously issued share-based awards.
5. Pension Plan
The Company sponsors a single employer defined benefit pension plan (the "plan") covering substantially all union employees. Employees covered by collective bargaining agreements are
primarily non-management store associates, representing approximately 7% of the Company's workforce. The collective bargaining agreement with the Local 1102 unit of the Retail, Wholesale
and Department Store Union ("RWDSU") AFL-CIO ("Local 1102") is set to expire on August 31, 2013. The Company believes its relationship with its employees is good.
The
plan provides retirement benefits for union employees who have attained the age of 21 and complete 1,000 or more hours of service in any calendar year following the date of
employment. The plan provides benefits based on length of service. The Company's funding policy for the pension plan is to contribute annually the amount necessary to provide for benefits based on
accrued service and to contribute at least the minimum required by ERISA rules. The Company anticipates contributing approximately $0.5 million to the plan during fiscal year 2013. Net periodic
benefit cost includes the following components:
|
|
|
|
|
|
|
|
|
|
Three months
ended
May 4, 2013
|
|
Three months
ended
April 28, 2012
|
|
|
|
(Amounts in thousands)
|
|
Service cost
|
|
$
|
85
|
|
$
|
88
|
|
Interest cost
|
|
|
102
|
|
|
104
|
|
Expected return on plan assets
|
|
|
(122
|
)
|
|
(122
|
)
|
Amortization of unrecognized losses
|
|
|
52
|
|
|
51
|
|
Amortization of prior service credit
|
|
|
(4
|
)
|
|
(4
|
)
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
113
|
|
$
|
117
|
|
|
|
|
|
|
|
In
accordance with FASB ASC Topic 220, "Comprehensive Income," comprehensive income (loss) reported on the Company's condensed consolidated statements of comprehensive income (loss)
includes net income (loss) and other comprehensive income (loss). For the Company, other comprehensive income (loss) consists of the reclassification of unrecognized losses and prior service credits
related to the Company's minimum pension liability. For the three months ended May 4, 2013 and April 28, 2012, the Company reclassified $48,000 and $47,000, respectively, out of
accumulated other comprehensive
6
Table of Contents
New York & Company, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
May 4, 2013
(Unaudited)
5. Pension Plan (Continued)
loss
on the consolidated balance sheets and into selling, general and administrative expenses on the Company's consolidated statements of operations for unrecognized losses and prior service credits
related to the Company's minimum pension liability. As of February 2, 2013, the Company reported a minimum pension liability of $3.1 million due to the underfunded status of the plan.
The minimum pension liability is reported in other liabilities on the condensed consolidated balance sheets.
6. Income Taxes
The Company files U.S. federal income tax returns and income tax returns in various state and local jurisdictions. The Company is no longer subject to U.S. federal income tax
examinations for tax years through 2005. With limited exception, the Company is no longer subject to state and local income tax examinations for tax years through 2008.
At
February 2, 2013, the Company reported a total liability for unrecognized tax benefits of $4.4 million, including interest and penalties, all of which would impact the
Company's effective tax rate if recognized. During the three months ended May 4, 2013, the Company reversed a $0.6 million liability previously recorded for unrecognized tax benefits.
The Company does not anticipate any significant increases or decreases to the balance of unrecognized tax benefits during the next 12 months.
As
previously disclosed, during the three months ended July 31, 2010, the Company concluded that a full valuation allowance against the Company's deferred tax assets was necessary
in order to reflect the Company's assessment of its ability to realize the benefits of those deferred tax assets. The Company made this determination after weighing both negative and positive evidence
in accordance with FASB ASC Topic 740, "Income Taxes" ("ASC 740"), which requires that deferred tax assets be reduced by a
valuation allowance if, based on all available evidence, it is considered more likely than not that some portion or all of the recorded deferred tax assets will not be realized in a future period. The
evidence weighed included a historical three-year cumulative loss related to earnings before taxes in addition to an assessment of sources of taxable income, availability of tax planning
strategies, and future projections of earnings. The Company will continue to maintain a valuation allowance against its deferred tax assets until the Company believes it is more likely than not that
these assets will be realized in the future. If sufficient positive evidence arises in the future indicating that all or a portion of the deferred tax assets meet the
more-likely-than-not standard under ASC 740, the valuation allowance would be reversed accordingly in the period that such determination is made. As of
May 4, 2013, the Company's valuation allowance against its deferred tax assets was $59.0 million.
7. Long-Term Debt and Credit Facilities
On August 10, 2011, Lerner New York, Inc., Lernco, Inc. and Lerner New York Outlet, Inc., wholly-owned indirect subsidiaries of New York &
Company, Inc., entered into a Third Amended and Restated Loan and Security Agreement (the "Loan Agreement") with Wells Fargo Bank, N.A., as Agent and sole lender. The Loan Agreement expires on
August 10, 2016.
The
Loan Agreement provides the Company with up to $100 million of credit, consisting of a $75 million revolving credit facility (which includes a subfacility for issuance
of letters of credit up to
7
Table of Contents
New York & Company, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
May 4, 2013
(Unaudited)
7. Long-Term Debt and Credit Facilities (Continued)
$45 million)
with a fully committed accordion option that allows the Company to increase the revolving credit facility to a maximum of $100 million or decrease it to a minimum of
$60 million, subject to certain restrictions. Under the Loan Agreement, the Company is currently subject to a Minimum
Excess Availability (as defined in the Loan Agreement) covenant of $7.5 million. The Company's credit facility contains other covenants, including restrictions on the Company's ability to pay
dividends on its common stock; to incur additional indebtedness; and to prepay, redeem, defease or purchase other debt. Subject to such restrictions, the Company may incur more debt for working
capital, capital expenditures, stock repurchases, acquisitions and for other purposes.
Under
the terms of the Loan Agreement, the revolving loans under the credit facility bear interest, at the Company's option, either at a floating rate equal to the Eurodollar rate plus a
margin of between 1.75% and 2.00% per year for Eurodollar rate loans or a floating rate equal to the Prime rate plus a margin of between 0.75% and 1.00% per year for Prime rate loans, depending upon
the Company's Average Compliance Excess Availability (as defined in the Loan Agreement). The Company pays the lender under the revolving credit facility a monthly fee on outstanding commercial letters
of credit at a rate of between 0.875% and 1.00% per year and on standby letters of credit at a rate of between 1.75% and 2.00% per year, depending upon the Company's Average Compliance Excess
Availability, plus a monthly fee on the unused commitments under the revolving credit facility at a rate of 0.375% per year.
The
maximum borrowing availability under the Company's revolving credit facility is determined by a monthly borrowing base calculation that is based on the application of specified
advance rates against inventory and certain other eligible assets. As of May 4, 2013, the Company had availability under its revolving credit facility of $60.9 million, net of letters of
credit outstanding of $11.3 million, as compared to availability of $33.4 million, net of letters of credit outstanding of $12.0 million, as of February 2, 2013, and
$61.4 million, net of letters of credit outstanding of $11.3 million, as of April 28, 2012.
The
lender has been granted a pledge of the common stock of Lerner New York Holding, Inc. and certain of its subsidiaries, and a first priority security interest in substantially
all other tangible and intangible assets of New York & Company, Inc. and its subsidiaries, as collateral for the Company's obligations under the credit facility. In addition, New
York & Company, Inc. and certain of its subsidiaries have fully and unconditionally guaranteed the credit facility, and such guarantees are joint and several.
8. Fair Value Measurements
FASB ASC Topic 820, "Fair Value Measurements and Disclosures" ("ASC 820"), establishes a common definition for fair value to be applied to GAAP guidance requiring the use of fair value,
establishes a framework for measuring fair value, and expands the disclosure about such fair value measurements. ASC 820 establishes a three-level fair value hierarchy that requires entities to
maximize
8
Table of Contents
New York & Company, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
May 4, 2013
(Unaudited)
8. Fair Value Measurements (Continued)
the
use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs used to measure fair value are as follows:
|
|
|
Level 1:
|
|
Observable inputs such as quoted prices in active markets;
|
Level 2:
|
|
Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
|
Level 3:
|
|
Unobservable inputs in which there is little or no market data and require the reporting entity to develop its own assumptions.
|
The
Company's financial instruments consist of cash and cash equivalents, short-term trade receivables and accounts payable. The carrying values on the balance sheet for cash
and cash equivalents, short-term trade receivables and accounts payable approximate their fair values due to the short-term maturities of such items.
The
Company classifies long-lived store assets within level 3 of the fair value hierarchy. The Company evaluates long-lived assets for recoverability in
accordance with FASB ASC Topic 360, "Property, Plant, and Equipment" whenever events or changes in circumstances indicate that an asset may have been impaired. In evaluating an asset for
recoverability, the Company estimates the future cash flow expected to result from the use of the asset and eventual disposition and market data assumptions. If the sum of the expected future
undiscounted cash flow is less than the carrying amount of the asset, an impairment loss equal to the excess of the carrying amount over the fair value of the asset is recognized. At May 4,
2013 and April 28, 2012, the Company's evaluation of long-lived assets did not result in any material impairments.
9
Table of Contents
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND RISK FACTORS
(Cautionary Statements Under the Private Securities Litigation Reform Act of 1995)
This Quarterly Report on Form 10-Q includes forward looking statements. Certain matters discussed in "Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations" and other sections of this Quarterly Report on Form 10-Q are forward looking statements
intended to qualify for safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. Some of these statements
can be identified by terms and phrases such as "anticipate," "believe," "intend," "estimate," "expect," "continue," "could," "may," "plan," "project," "predict" and similar expressions and include
references to assumptions that the Company believes are reasonable and relate to its future prospects, developments and business strategies. Factors that could cause the Company's actual results to
differ materially from those expressed or implied in such forward looking statements, include, but are not limited to those discussed under the heading "Item 3. Quantitative and
Qualitative Disclosures About Market Risk" in this Quarterly Report on Form 10-Q and the risks and uncertainties as described in the Company's documents filed with the SEC,
including its Annual Report on Form 10-K, as filed on April 16, 2013.
The
Company undertakes no obligation to revise the forward looking statements included in this Quarterly Report on Form 10-Q to reflect any future events or
circumstances. The Company's actual results, performance or achievements could differ materially from the results expressed or implied by these forward looking statements.
Overview
The Company is a leading specialty retailer of women's fashion apparel and accessories, and the modern
wear-to-work destination for women, providing perfectly fitting pants and NY Style that is feminine, polished, on-trend and versatile. The Company's proprietary
branded New York & Company® merchandise is sold exclusively through its national network of retail stores and eCommerce store at
www.nyandcompany.com
. The target customers for the Company's
merchandise are fashion-conscious, value-sensitive women between the ages of 25 and 45. As
of May 4, 2013, the Company operated 519 stores in 43 states.
During
the three months ended May 4, 2013, the Company made progress on its six strategic initiatives for fiscal year 2013. These include: maximizing sales and profitability
particularly during peak traffic times of the year; increasing marketing efforts to grow traffic in stores and on-line; capitalizing on the growth opportunity in the pant and denim
categories; reducing markdowns through streamlining of business processes; delivering a compelling omni-channel customer experience; and expanding its eCommerce and Outlet businesses.
Net
sales for the three months ended May 4, 2013 were $227.5 million, as compared to $227.7 million for the three months ended April 28, 2012. Comparable
store sales decreased by 2.0% for the three months ended May 4, 2013, as compared to a comparable store sales decrease of 2.9% for the three months ended April 28, 2012. Net income for
the three months ended May 4, 2013 was $1.6 million, or $0.03 per diluted share, as compared to a net loss of $0.2 million, or breakeven on a per diluted share basis for the three
months ended April 28, 2012.
Capital
spending for the three months ended May 4, 2013 was $3.0 million, as compared to $5.9 million for the three months ended April 28, 2012. The
$3.0 million of capital spending represents $2.4 million related to the opening of one New York & Company Outlet store and the remodeling of three existing stores, and
$0.6 million related to information technology enhancements, including the upgrade of the Company's eCommerce platform and website. At May 4, 2013, the Company operated
10
Table of Contents
519
stores, including 45 Outlet stores, and 2.7 million selling square feet. During fiscal year 2013, the Company expects to open between eight and 12 Outlet stores, remodel seven to 11
existing locations, and close between 30 and 36 stores, ending the year with between 491 and 501 stores, including 52 to 56 Outlet stores.
The
Company views the retail apparel market as having two principal selling seasons: spring (first and second quarter) and fall (third and fourth quarter). The Company's business
experiences seasonal fluctuations in net sales and operating income, with a significant portion of its operating income typically realized during its fourth quarter. Any decrease in sales or margins
during either of the principal selling seasons in any given year could have a disproportionate effect on the Company's financial condition and results of operations. Seasonal fluctuations also affect
inventory levels. The Company must carry a significant amount of inventory, especially before the holiday season selling period in the fourth quarter and prior to the Easter and Mother's Day holidays
toward the end of the first quarter and beginning of the second quarter.
Results of Operations
The following tables summarize the Company's results of operations as a percentage of net sales and selected store operating data for
the three months ended May 4, 2013 and April 28, 2012:
|
|
|
|
|
|
|
|
|
|
Three months
ended
May 4, 2013
|
|
Three months
ended
April 28, 2012
|
|
Net sales
|
|
|
100.0
|
%
|
|
100.0
|
%
|
Cost of goods sold, buying and occupancy costs
|
|
|
70.8
|
%
|
|
71.7
|
%
|
|
|
|
|
|
|
Gross profit
|
|
|
29.2
|
%
|
|
28.3
|
%
|
Selling, general and administrative expenses
|
|
|
28.7
|
%
|
|
28.3
|
%
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
0.5
|
%
|
|
(0.0
|
)%
|
Interest expense, net
|
|
|
0.0
|
%
|
|
0.0
|
%
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
0.5
|
%
|
|
(0.0
|
)%
|
(Benefit) provision for income taxes
|
|
|
(0.2
|
)%
|
|
0.1
|
%
|
|
|
|
|
|
|
Net income (loss)
|
|
|
0.7
|
%
|
|
(0.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended
May 4, 2013
|
|
Three months
ended
April 28, 2012
|
|
|
|
(Dollars in thousands,
except square foot data)
|
|
Selected operating data:
|
|
|
|
|
|
|
|
Comparable store sales decrease
|
|
|
(2.0
|
)%
|
|
(2.9
|
)%
|
Net sales per average selling square foot(1)
|
|
$
|
84
|
|
$
|
79
|
|
Net sales per average store(2)
|
|
$
|
438
|
|
$
|
424
|
|
Average selling square footage per store(3)
|
|
|
5,236
|
|
|
5,329
|
|
-
(1)
-
Net
sales per average selling square foot is defined as net sales divided by the average of beginning and end of period selling square feet.
-
(2)
-
Net
sales per average store is defined as net sales divided by the average of beginning and end of period number of stores.
11
Table of Contents
-
(3)
-
Average
selling square footage per store is defined as end of period selling square feet divided by end of period number of stores.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended
May 4, 2013
|
|
Three months
ended
April 28, 2012
|
|
|
|
Store
Count
|
|
Selling
Square
Feet
|
|
Store
Count
|
|
Selling
Square
Feet
|
|
Store count and selling square feet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stores open, beginning of period
|
|
|
519
|
|
|
2,725,273
|
|
|
532
|
|
|
2,873,436
|
|
New stores
|
|
|
1
|
|
|
3,236
|
|
|
10
|
|
|
35,167
|
|
Closed stores
|
|
|
(1
|
)
|
|
(5,756
|
)
|
|
(1
|
)
|
|
(5,285
|
)
|
Net impact of remodeled stores on selling square feet
|
|
|
|
|
|
(5,465
|
)
|
|
|
|
|
(20,119
|
)
|
|
|
|
|
|
|
|
|
|
|
Stores open, end of period
|
|
|
519
|
|
|
2,717,288
|
|
|
541
|
|
|
2,883,199
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended May 4, 2013 Compared to Three Months Ended April 28, 2012
Net Sales.
Net sales for the three months ended May 4, 2013 were $227.5 million, as compared to $227.7 million for the
three
months ended April 28, 2012. During the three months ended May 4, 2013, net sales from the Company's eCommerce business increased 17.0%, as compared to the three months ended
April 28, 2012. Net sales from the Company's Outlet stores increased to 8.5% of total net sales during the three months ended May 4, 2013, as compared to 5.8% of total net sales during
the three months ended April 28, 2012.
Comparable
store sales for the three months ended May 4, 2013 decreased by 2.0%, as compared to a decrease of 2.9% for the three months ended April 28, 2012. In the
comparable store sales base, average dollar sales per transaction increased by 0.8%, while the number of transactions per average store decreased by 2.8%, as compared to the same period last year.
Gross Profit.
Gross profit for the three months ended May 4, 2013 was $66.3 million, or 29.2% of net sales, as compared to
$64.6 million, or 28.3% of net sales, for the three months ended April 28, 2012. The increase in gross profit as a percentage of net sales during the three months ended May 4,
2013 was primarily the result of a 100 basis point improvement in merchandise margin, primarily attributable to sourcing efficiencies and reduced product costs, partially offset by a 10 basis point
increase in buying and occupancy costs as a percentage of net sales due to a slight increase in certain payroll costs.
Selling, General and Administrative Expenses.
Selling, general and administrative expenses were $65.1 million, or 28.7% of net
sales, for the
three months ended May 4, 2013, as compared to $64.6 million, or 28.3% of net sales, for the three months ended April 28, 2012. The increase in selling, general and administrative
expenses for the three months ended May 4, 2013, as compared to the three
months ended April 28, 2012, reflects planned investments to support the Company's growing eCommerce and Outlet businesses.
Operating Income (Loss).
For the reasons discussed above, operating income for the three months ended May 4, 2013 was
$1.2 million, as
compared to an operating loss of $0.1 million for the three months ended April 28, 2012.
Interest Expense, Net.
Net interest expense was $0.1 million for the three months ended May 4, 2013 and the three months ended
April 28, 2012.
12
Table of Contents
(Benefit) Provision for Income Taxes.
As previously disclosed, the Company continues to provide for adjustments to the deferred tax
valuation
allowance initially recorded during the three months ended July 31, 2010. The income tax benefit for the three months ended May 4, 2013 was $0.5 million as compared to a provision
of $45,000 for the three months ended April 28, 2012. The income tax benefit for the three months ended May 4, 2013 resulted primarily from the reversal of a $0.6 million
liability previously recorded for unrecognized tax benefits.
Net Income (Loss).
For the reasons discussed above, net income for the three months ended May 4, 2013 was $1.6 million, as
compared to
a net loss of $0.2 million for the three months ended April 28, 2012.
Liquidity and Capital Resources
The Company's primary uses of cash are to fund working capital, operating expenses, debt service and capital expenditures related
primarily to the construction of new stores, remodeling of existing stores and development of the Company's information technology
infrastructure. Historically, the Company has financed these requirements from internally generated cash flow. The Company intends to fund its ongoing capital and working capital requirements, as well
as debt service obligations, primarily through cash flows from operations, supplemented by borrowings under its credit facility, if needed. The Company is in compliance with all debt covenants as of
May 4, 2013.
The
following tables contain information regarding the Company's liquidity and capital resources:
|
|
|
|
|
|
|
|
|
|
|
|
|
May 4,
2013
|
|
February 2,
2013
|
|
April 28,
2012
|
|
|
|
(Amounts in thousands)
|
|
Cash and cash equivalents
|
|
$
|
39,471
|
|
$
|
60,933
|
|
$
|
29,481
|
|
Working capital
|
|
$
|
45,238
|
|
$
|
38,944
|
|
$
|
30,244
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended
May 4, 2013
|
|
Three months
ended
April 28, 2012
|
|
|
|
(Amounts in thousands)
|
|
Net cash used in operating activities
|
|
$
|
(18,514
|
)
|
$
|
(15,508
|
)
|
Net cash used in investing activities
|
|
$
|
(2,996
|
)
|
$
|
(5,863
|
)
|
Net cash provided by financing activities
|
|
$
|
48
|
|
$
|
65
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
$
|
(21,462
|
)
|
$
|
(21,306
|
)
|
|
|
|
|
|
|
Operating Activities
Net cash used in operating activities was $18.5 million for the three months ended May 4, 2013, as compared to
$15.5 million for the three months ended April 28, 2012. The increase in net cash used in operating activities during the three months ended May 4, 2013, as compared to the three
months ended April 28, 2012, is primarily due to changes in accounts receivable, prepaid expenses, accounts payable, accrued expenses, income taxes payable, deferred rent, and other assets and
liabilities, partially offset by an increase in net income and changes in inventory.
Investing Activities
Net cash used in investing activities was $3.0 million for the three months ended May 4, 2013, as compared to
$5.9 million for the three months ended April 28, 2012. Net cash used in investing activities during the three months ended May 4, 2013 represents capital expenditures of
$2.4 million related to the opening of one New York & Company Outlet store and remodeling of three existing stores, and $0.6 million related to information technology
enhancements, including the upgrade of the
13
Table of Contents
Company's
eCommerce platform and website. Net cash used in investing activities during the three months ended April 28, 2012 reflects capital expenditures of $5.6 million related to the
opening of new stores and remodeling of existing stores, and $0.2 million related to information technology enhancements.
As
of May 4, 2013, the Company operated 519 stores, including 45 New York & Company Outlet stores. During fiscal year 2013, the Company expects to open between eight and 12
Outlet stores, remodel seven to 11 existing locations, and close between 30 and 36 stores, ending the year with between 491 and 501 stores, including 52 to 56 Outlet stores. The Company's future
capital requirements will depend primarily on the number of new stores it opens, the number of existing stores it remodels and the timing of these expenditures.
Financing Activities
Net cash provided by financing activities for the three months ended May 4, 2013 and the three months ended April 28,
2012 represents proceeds from the exercise of stock options.
Long-Term Debt and Credit Facilities
On August 10, 2011, Lerner New York, Inc., Lernco, Inc. and Lerner New York Outlet, Inc., wholly-owned
indirect subsidiaries of New York & Company, Inc., entered into a Third Amended and Restated Loan and Security Agreement (the "Loan Agreement") with Wells Fargo Bank, N.A., as Agent and
sole lender. The Loan Agreement expires on August 10, 2016.
The
Loan Agreement provides the Company with up to $100 million of credit, consisting of a $75 million revolving credit facility (which includes a subfacility for issuance
of letters of credit up to $45 million) with a fully committed accordion option that allows the Company to increase the revolving credit facility to a maximum of $100 million or decrease
it to a minimum of $60 million, subject to certain restrictions. Under the Loan Agreement, the Company is currently subject to a Minimum Excess Availability (as defined in the Loan Agreement)
covenant of $7.5 million. The Company's credit facility contains other covenants, including restrictions on the Company's ability to pay dividends on its common stock; to incur additional
indebtedness; and to prepay, redeem, defease or purchase other debt. Subject to such restrictions, the Company may incur more debt for working capital, capital expenditures, stock repurchases,
acquisitions and for other purposes.
Under
the terms of the Loan Agreement, the revolving loans under the credit facility bear interest, at the Company's option, either at a floating rate equal to the Eurodollar rate plus a
margin of between 1.75% and 2.00% per year for Eurodollar rate loans or a floating rate equal to the Prime rate plus a margin of between 0.75% and 1.00% per year for Prime rate loans, depending upon
the Company's Average Compliance Excess Availability (as defined in the Loan Agreement). The Company pays the lender under the revolving credit facility a monthly fee on outstanding commercial letters
of credit at a rate of between 0.875% and 1.00% per year and on standby letters of credit at a rate of between 1.75% and 2.00% per year, depending upon the Company's Average Compliance Excess
Availability, plus a monthly fee on the unused commitments under the revolving credit facility at a rate of 0.375% per year.
The
maximum borrowing availability under the Company's revolving credit facility is determined by a monthly borrowing base calculation that is based on the application of specified
advance rates against inventory and certain other eligible assets. As of May 4, 2013, the Company had availability under its revolving credit facility of $60.9 million, net of letters of
credit outstanding of $11.3 million, as compared to availability of $33.4 million, net of letters of credit outstanding of $12.0 million, as of February 2, 2013, and
$61.4 million, net of letters of credit outstanding of $11.3 million, as of April 28, 2012.
14
Table of Contents
The
lender has been granted a pledge of the common stock of Lerner New York Holding, Inc. and certain of its subsidiaries, and a first priority security interest in substantially
all other tangible and intangible assets of New York & Company, Inc. and its subsidiaries, as collateral for the Company's obligations under the credit facility. In addition, New
York & Company, Inc. and certain of its subsidiaries have fully and unconditionally guaranteed the credit facility, and such guarantees are joint and several.
Critical Accounting Policies
Management has determined that the Company's most critical accounting policies are those related to inventories, long-lived
assets, intangible assets and income taxes. Management continues to monitor these accounting policies to ensure proper application of current rules and regulations. There have been no significant
changes to these policies as discussed in the Company's Annual Report on Form 10-K filed with the SEC on April 16, 2013.
Adoption of New Accounting Standards
In July 2012, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2012-02,
"Testing Indefinite-Lived Intangible Assets for Impairment" ("ASU 2012-02"), which amends FASB Accounting Standards Codification Topic 350, "IntangiblesGoodwill and
Other" to permit an entity to first assess qualitative factors to determine if it is more likely than not that an indefinite-lived intangible asset is impaired and whether it is necessary to perform
the impairment test of comparing the carrying amount with the recoverable amount of the indefinite-lived intangible asset. This guidance is effective for interim and annual impairment tests performed
in fiscal years beginning after September 15, 2012, with early adoption permitted. The adoption of ASU 2012-02 on February 3, 2013 did not have a material impact on the
Company's financial position or results of operations.
In
February 2013, the FASB issued ASU 2013-02, "Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income" ("ASU 2013-02"), which sets forth
additional disclosure requirements for items reclassified out of accumulated other comprehensive income and into net income that will be effective for annual reporting periods beginning after
December 15, 2012. The adoption of ASU 2013-02 on February 3, 2013 did not have a material impact on the Company's financial position or results of operations.