Newswires
NEW YORK & COMPANY, INC. – 10-Q – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
| Edgar Online, Inc. |
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: º •
Âş the impact of general economic conditions and their effect on consumer
confidence and spending patterns;
º •
Âş changes in the cost of raw materials, distribution services or labor;
º •
Âş the potential for current economic conditions to negatively impact the
Company's merchandise vendors and their ability to deliver products,
as well as the Company's retail landlords and their ability to maintain their shopping centers in a first-class condition and otherwise perform their obligations as a landlord; º •
Âş the Company's ability to anticipate and respond to fashion trends,
develop new merchandise and launch new product lines successfully;
º • º the Company's ability to effectively market to customers and drive traffic to its stores; º •
Âş fluctuations in comparable store sales and results of operations;
º • º seasonal fluctuations in the Company's business; º •
Âş the Company's reliance on foreign sources of production, including the
disruption of imports by labor disputes, political instability, legal
and regulatory matters, duties, taxes, other charges, local business
practices, potential delays in shipping and related pricing impacts
and political issues and fluctuation in currency and exchange rates;
º •
Âş the potential impact of national and international security concerns on the retail environment, including any possible military action, terrorist attacks or other hostilities;
º •
Âş the potential impact of natural disasters and health concerns relating
to outbreaks of widespread diseases, particularly on manufacturing
operations of the Company's vendors;
º •
Âş the ability of the Company's manufacturers to manufacture and deliver
products in a timely manner while meeting its quality standards; º • º the Company's ability to open and operate stores successfully,
including its new
lack of availability of suitable store locations on acceptable terms;
º •
Âş the Company's ability to successfully integrate new or acquired
businesses, including theCompany's New York & Company Outlet stores, into its existing business; 13
--------------------------------------------------------------------------------
Table of Contents º • º the Company's dependence on mall traffic for its sales; º • º the Company's dependence on the success of its brand; º • º the susceptibility of the Company's business to extreme and/or unseasonable weather conditions; º •
Âş the Company's reliance on third parties to manage some aspects of its
business;
º •
Âş the Company's reliance on the effective use of customer information;
º •
Âş the Company's reliance on manufacturers to maintain ethical business
practices; º • º the effects of government regulation; º •
Âş competition in the Company's market, including promotional and pricing
competition;
º •
Âş the Company's ability to protect its trademarks and other intellectual
property rights; º • º the Company's ability to maintain, and its reliance on, its information technology infrastructure; º • º the Company's ability to service any debt it incurs from time to time as well as its ability to maintain the requirements that the agreements related to such debt impose upon the Company; º •
Âş the Company's ability to retain, recruit and train key personnel;
º •
Âş the control of the Company by its sponsors and any potential change of
ownership of those sponsors; and
º •
Âş risks and uncertainties as described in the Company's documents filed with theSEC , including its Annual Report on Form 10-K, as filed onApril 11, 2011 . 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-all at an amazing value. The Company's proprietary brandedNew York & Company® merchandise is sold exclusively through its national network of retail stores and eCommerce store at www.nyandcompany.com. As ofOctober 29, 2011 , the Company operated 542 stores in 43 states. The Company's outlet business performed in-line with the Company's expectations during the three months endedOctober 29, 2011 , its eCommerce sales nearly doubled during the quarter and, in the Company's comparable store base, average dollar sales per transaction increased by 13.4%, as compared to the three months endedOctober 30, 2010 . Despite these improvements, a reduction in the Company's store base to 542 stores atOctober 29, 2011 from 579 stores atOctober 30, 2010 combined with a comparable store sales decrease of 5.2% during the three months endedOctober 29, 2011 led to a 9.0% decrease in net sales to$216.7 million , as compared to$238.2 million during last year's third quarter. Net loss for the three months endedOctober 29, 2011 was$9.0 million , or$0.15 per diluted share, as compared to net income of$1.9 million , or$0.03 per diluted share for the three months endedOctober 30, 2010 . On a non-GAAP basis, normalizing taxes to eliminate the valuation allowance against deferred tax assets generated by the operating loss during the three months endedOctober 29, 2011 and a$2.5 million charge related to an additional valuation allowance established resulting from temporary differences identified in anIRS income tax audit that relate to tax years 2002 and prior, the Company's adjusted net loss was$3.9 million , or$0.06 per diluted share. On a non-GAAP basis, 14
--------------------------------------------------------------------------------
Table of Contents
excluding separation expenses and restructuring charges totaling$1.1 million , and normalizing taxes to eliminate a$6.1 million tax benefit resulting from a change in accounting methods for tax purposes and the valuation allowance against deferred tax assets recorded during the three months endedOctober 30, 2010 , the Company's adjusted net loss was$1.9 million , or$0.03 per diluted share. Please refer to the "Non-GAAP Financial Measures" section below for a reconciliation of the GAAP to non-GAAP financial measures. Capital spending for the nine months endedOctober 29, 2011 was$9.4 million , as compared to$13.0 million for the nine months endedOctober 30, 2010 . The$9.4 million of capital spending represents$7.0 million related to the remodeling of 10 existing stores and$2.4 million related to non-store capital projects. Capital spending during the nine months endedOctober 30, 2010 represents$8.9 million related to the construction of 21 new stores and the remodeling of six existing stores, and$4.1 million related to non-store capital projects. 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 the fourth quarter. 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.
General
Net Sales. Net sales consist of sales from comparable and non-comparable stores and the Company's eCommerce store. A store is included in the comparable store sales calculation after it has completed 13 full fiscal months of operation from the store's original opening date or once it has been reopened after remodeling. Non-comparable store sales include stores which have not completed 13 full fiscal months of operations, sales from closed stores, and sales from stores closed or in temporary locations during periods of remodeling. In addition, in a year with 53 weeks, sales in the last week of the year are not included in determining comparable store sales. Net sales from the sale of merchandise at the Company's stores are recognized when the customer takes possession of the merchandise and the purchases are paid for, primarily with either cash or credit card. Net sales from the sale of merchandise at the Company's eCommerce store are recognized when the merchandise is shipped to the customer. A reserve is provided for projected merchandise returns based on prior experience. The Company issues gift cards which do not contain provisions for expiration or inactivity fees. The portion of the dollar value of gift cards that ultimately is not used by customers to make purchases is known as breakage. The Company recognizes gift card breakage as revenue as gift cards are redeemed over a two-year redemption period based on its historical gift card breakage rate. The Company considers the likelihood of redemption remote beyond a two-year redemption period, at which point any unrecognized gift card breakage is recognized as revenue. The Company determined the redemption period and the gift card breakage rate based on its historical redemption patterns. Cost of Goods Sold, Buying and Occupancy Costs. Cost of goods sold, buying and occupancy costs is comprised of direct inventory costs for merchandise sold, distribution, payroll and related costs for design, sourcing, production, merchandising, planning and allocation personnel, and store occupancy and related costs.
Gross Profit. Gross profit represents net sales less cost of goods sold, buying and occupancy costs.
Selling, General and Administrative Expenses. Selling, general and administrative expenses include selling, store management and corporate expenses, including payroll and employee benefits, employment taxes, management information systems, marketing, insurance, legal, store pre-opening and
15
--------------------------------------------------------------------------------
Table of Contents
other corporate level expenses. Store pre-opening expenses include store level payroll, grand opening event marketing, travel, supplies and other store opening expenses. 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 and nine months ended
Three months Three months Nine months Nine months ended ended ended ended As a % of net sales October 29, 2011 October 30, 2010 October 29, 2011 October 30, 2010 Net sales 100.0 % 100.0 % 100.0 % 100.0 % Cost of goods sold, buying and occupancy costs 75.3 % 72.1 % 76.3 % 79.8 % Gross profit 24.7 % 27.9 % 23.7 % 20.2 % Selling, general and administrative expenses 27.5 % 29.6 % 27.3 % 31.0 % Restructuring charges - % - % - % 0.2 % Operating loss (2.8 )% (1.7 )% (3.6 )% (11.0 )% Interest expense, net 0.1 % 0.1 % 0.1 % 0.1 % Loss on modification and extinguishment of debt 0.1 % - % - % - % Loss before income taxes (3.0 )% (1.8 )% (3.7 )% (11.1 )% Provision (benefit) for income taxes 1.1 % (2.6 )% 0.4 % 1.6 % Net (loss) income (4.1 )% 0.8 % (4.1 )% (12.7 )% Three months Three months Nine months Nine months ended ended ended ended
Selected operating data:
(Dollars in thousands, except square foot data) Comparable store sales (decrease) increase (5.2 )% 3.6 % (2.0 )% 1.5 % Net sales per average selling square foot(1) $ 74 $ 75 $ 230 $ 225 Net sales per average store(2) $ 399 $ 411 $ 1,247 $ 1,243 Average selling square footage per store(3) 5,412 5,505 5,412 5,505
--------------------------------------------------------------------------------
Âş (1)
Âş 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.
Âş (2)
Âş Net sales per average store is defined as net sales divided by the average
of beginning and end of period number of stores. Âş (3) Âş Average selling square footage per store is defined as end of period selling square feet divided by end of period number of stores. 16
--------------------------------------------------------------------------------
Table of Contents
Three months Three months Nine months Nine months ended ended ended ended October 29, 2011 October 30, 2010 October 29, 2011 October 30, 2010 Store Selling Store
Selling Store Selling Store
- - 4 13,838 - - 21 71,500 Closed stores (1 ) (5,503 ) (6 )
(9,010 ) (13 ) (63,911 ) (18 ) (71,873 ) Net impact of remodeled stores on selling square feet
- (5,899 ) -
(2,009 ) - (29,161 ) - (6,113 )
Stores open, end of period 542 2,933,411 579
3,187,116 542 2,933,411 579 3,187,116
Three Months Ended
Net Sales. Net sales for the three months endedOctober 29, 2011 decreased 9.0% to$216.7 million , as compared to$238.2 million for the three months endedOctober 30, 2010 . Contributing to the decline in net sales is the Company's lower store base which consisted of 542 stores atOctober 29, 2011 , as compared to 579 stores atOctober 30, 2010 . Comparable store sales decreased 5.2% for the three months endedOctober 29, 2011 , as compared to an increase of 3.6% for the three months endedOctober 30, 2010 . In the comparable store base, average dollar sales per transaction increased by 13.4%, while the number of transactions per average store decreased by 16.4%, as compared to the same period last year. Gross Profit. Gross profit for the three months endedOctober 29, 2011 decreased to$53.5 million , or 24.7% of net sales, as compared to$66.5 million , or 27.9% of net sales, for the three months endedOctober 30, 2010 . The decrease in gross profit as a percentage of net sales during the three months endedOctober 29, 2011 is primarily due to a 200 basis point decrease in merchandise margins resulting from increased product costs coupled with slightly higher markdowns than the prior year's third quarter as a result of entering the third quarter of last year with unusually low levels of carryover goods. In addition, buying and occupancy costs increased as a percentage of net sales by 120 basis points during the three months endedOctober 29, 2011 , driven primarily by deleveraging that resulted from negative comparable store sales. Selling, General and Administrative Expenses. Selling, general and administrative expenses were$59.6 million , or 27.5% of net sales, for the three months endedOctober 29, 2011 , as compared to$70.4 million , or 29.6% of net sales, for the three months endedOctober 30, 2010 . Selling, general and administrative expenses during the three months endedOctober 30, 2010 include approximately$1.0 million of separation expenses related to management changes that were not associated with the Company's restructuring activities. After excluding this prior year charge, selling, general and administrative expenses decreased by$9.8 million , or 160 basis points, reflecting the favorable impact of store payroll efficiencies, the reduction in the Company's store base since the end of the third quarter of last year and a decrease in the Company's incentive-based compensation. 17
--------------------------------------------------------------------------------
Table of Contents
Restructuring Charges. As previously disclosed, during fiscal year 2010 the Company exited an underperforming test accessories concept consisting of five stores. In connection with the exit of this concept, during the three months endedJuly 31, 2010 , the Company recorded$1.1 million of non-cash charges related to the impairment of store assets and$0.1 million of severance costs, which are reported in "Restructuring charges" on the condensed consolidated statements of operations. In addition, the Company recorded a$0.8 million charge related to the write-off of inventory, which is reported in "Cost of goods sold, buying and occupancy costs" on the condensed consolidated statements of operations. During the three months endedOctober 30, 2010 , the Company recorded additional pre-tax restructuring charges of$0.1 million related primarily to lease exit costs associated with exiting the test concept. No restructuring charges were incurred during the three months endedOctober 29, 2011 . Operating Loss. For the reasons discussed above, operating loss for the three months endedOctober 29, 2011 was$6.0 million , or 2.8% of net sales, as compared to an operating loss of$4.0 million , or 1.7% of net sales, for the three months endedOctober 30, 2010 . Interest Expense, Net. Net interest expense was$0.1 million for the three months endedOctober 29, 2011 , as compared to$0.2 million for the three months endedOctober 30, 2010 . Loss on Modification and Extinguishment of Debt. In connection with the repayment in full of the$4.5 million outstanding balance on the Company's term loan and entering into a Third Amended and Restated Loan and Security Agreement withWells Fargo Bank, N.A. onAugust 10, 2011 , the Company wrote off$0.1 million of unamortized deferred financing costs related to its previous credit facilities. Provision (Benefit) for Income Taxes. The effective tax rate for the three months endedOctober 29, 2011 reflects a provision of 42.1%, as compared to a benefit of 144.2% for the three months endedOctober 30, 2010 . As previously disclosed, the Company continues to provide for adjustments to the deferred tax valuation allowance initially recorded during the three months endedJuly 31, 2010 . For further information related to the deferred tax valuation allowance, please refer to Note 6, "Income Taxes" in the Notes to Condensed Consolidated Financial Statements appearing elsewhere in this Quarterly Report on Form 10-Q. The effective tax rate during the three months endedOctober 29, 2011 includes a$2.5 million charge related to an additional valuation allowance established resulting from temporary differences identified in anIRS income tax audit that relate to tax years 2002 and prior. The effective tax rate during the three months endedOctober 30, 2010 includes a$6.1 million tax benefit related primarily to a change in accounting methods for tax purposes, which resulted in a reduction of the depreciable lives of certain assets, and a refund of amounts previously paid with a corresponding adjustment to the Company's valuation allowance against its deferred tax assets.
Net (Loss) Income. For the reasons discussed above, net loss for the three months ended
Nine Months Ended
Net Sales. Net sales for the nine months endedOctober 29, 2011 decreased 4.7% to$684.6 million , as compared to$718.5 million for the nine months endedOctober 30, 2010 . Contributing to the decline in net sales is the Company's lower store base which consisted of 542 stores atOctober 29, 2011 , as compared to 579 stores atOctober 30, 2010 . Comparable store sales for the nine months endedOctober 29, 2011 decreased by 2.0%, as compared to an increase of 1.5% for the nine months endedOctober 30, 2010 . The decline in comparable store sales reflects a reduction in the Company's level of promotional activity and reduced markdowns during the first six months of fiscal year 2011. In the comparable store base, average dollar sales per transaction increased by 19.5%, while 18
--------------------------------------------------------------------------------
Table of Contents
the number of transactions per average store decreased by 18.0%, as compared to the same period last year.
Gross Profit. Gross profit for the nine months endedOctober 29, 2011 increased to$162.4 million , or 23.7% of net sales, as compared to$145.1 million , or 20.2% of net sales, for the nine months endedOctober 30, 2010 . The increase in gross profit as a percentage of net sales during the nine months endedOctober 29, 2011 is primarily due to a 320 basis point improvement in merchandise margins, resulting largely from a reduction in markdowns during the spring season. In addition, buying and occupancy costs decreased as a percentage of net sales by 30 basis points during the nine months endedOctober 29, 2011 . Selling, General and Administrative Expenses. Selling, general and administrative expenses were$187.2 million , or 27.3% of net sales, for the nine months endedOctober 29, 2011 , as compared to$222.5 million , or 31.0% of net sales, for the nine months endedOctober 30, 2010 . Selling, general and administrative expenses during the nine months endedOctober 30, 2010 were impacted by the inclusion of non-cash charges totaling$15.7 million , of which$15.2 million relates to the impairment ofNew York & Company store assets and$0.5 million relates to the disposal of certain information technology assets. In addition, the nine months endedOctober 30, 2010 includes$1.0 million of separation expenses related to management changes that were not associated with the Company's restructuring activities and$2.6 million of expenses related to state sales and use tax and payroll tax audits. No such charges were incurred during the nine months endedOctober 29, 2011 . Also contributing to the decrease in selling, general and administrative expenses during the nine months endedOctober 29, 2011 , as compared to the nine months endedOctober 30, 2010 , are the impact of store payroll efficiencies and the reduction of the Company's store base since the end of the third quarter of last year. Restructuring Charges. As previously disclosed, during fiscal year 2010 the Company exited an underperforming test accessories concept consisting of five stores. In connection with the exit of this concept, during the three months endedJuly 31, 2010 , the Company recorded$1.1 million of non-cash charges related to the impairment of store assets and$0.1 million of severance costs, which are reported in "Restructuring charges" on the condensed consolidated statements of operations. In addition, the Company recorded a$0.8 million charge related to the write-off of inventory, which is reported in "Cost of goods sold, buying and occupancy costs" on the condensed consolidated statements of operations. During the three months endedOctober 30, 2010 , the Company recorded additional pre-tax restructuring charges of$0.1 million related primarily to lease exist costs associated with exiting the test concept. No restructuring charges were incurred during the nine months endedOctober 29, 2011 . Operating Loss. For the reasons discussed above, operating loss for the nine months endedOctober 29, 2011 was$24.8 million , or 3.6% of net sales, as compared to an operating loss of$78.7 million , or 11.0% of net sales, for the nine months endedOctober 30, 2010 . Interest Expense, Net. Net interest expense was$0.4 million for the nine months endedOctober 29, 2011 , as compared to$0.5 million for the nine months endedOctober 30, 2010 . Loss on Modification and Extinguishment of Debt. In connection with the repayment in full of the$4.5 million outstanding balance on the Company's term loan and entering into a Third Amended and Restated Loan and Security Agreement withWells Fargo Bank, N.A. onAugust 10, 2011 , the Company wrote off$0.1 million of unamortized deferred financing costs related to its previous credit facilities. Provision for Income Taxes. The effective tax rate for the nine months endedOctober 29, 2011 reflects a provision of 10.9%, as compared to a provision of 15.4% for the nine months endedOctober 30, 2010 . The change in the effective tax rate during the nine months endedOctober 29, 2011 , 19
--------------------------------------------------------------------------------
Table of Contents
as compared to the same period last year, is primarily due to the following: (i) a$48.5 million non-cash charge to income tax expense incurred during the three months endedJuly 31, 2010 , which includes a$48.0 million valuation allowance against the Company's deferred tax assets and a$0.5 million reserve for uncertain tax positions, (ii) a$6.1 million tax benefit recorded during the three months endedOctober 30, 2010 related primarily to a change in accounting methods for tax purposes, which resulted in a reduction of the depreciable lives of certain assets, and a refund of amounts previously paid with a corresponding adjustment to the Company's valuation allowance against its deferred tax assets, and (iii) a$2.5 million charge to income tax expense incurred during the three months endedOctober 29, 2011 related to an additional valuation allowance established resulting from temporary differences identified in anIRS income tax audit that relate to tax years 2002 and prior. As previously disclosed, the Company continues to provide for adjustments to the deferred tax valuation allowance initially recorded during the three months endedJuly 31, 2010 . For further information related to the deferred tax valuation allowance, please refer to Note 6, "Income Taxes" in the Notes to Condensed Consolidated Financial Statements appearing elsewhere in this Quarterly Report on Form 10-Q. Net Loss. For the reasons discussed above, net loss for the nine months endedOctober 29, 2011 was$28.0 million , or 4.1% of net sales, as compared to a net loss of$91.5 million , or 12.7% of net sales, for the nine months endedOctober 30, 2010 .
Non-GAAP Financial Measures
A reconciliation of the Company's GAAP to non-GAAP loss before income taxes, provision (benefit) for income taxes, net (loss) income and (loss) earnings per diluted share for the three and nine months endedOctober 29, 2011 andOctober 30, 2010 are indicated below. For the three and nine months endedOctober 29, 2011 andOctober 30, 2010 , this information reflects, on a non-GAAP adjusted basis, the Company's operating results after excluding the effects of certain non-operating charges and normalizing taxes to eliminate the valuation allowance adjustments against deferred tax assets. This non-GAAP financial information is provided to enhance the user's overall understanding of the Company's current financial performance. Specifically, the Company believes the non-GAAP adjusted results provide useful information to both management and investors by excluding expenses and earnings that the Company believes are not indicative of the Company's operating results. The non-GAAP financial information should be considered in addition to, not as a substitute for or as being superior to, measures of financial performance prepared in accordance with GAAP. Three months ended October 29, 2011 Provision Loss per Loss before (benefit) for diluted
(Amounts in thousands, except per share amounts) income taxes income taxes Net loss share GAAP as reported
$ (6,315 ) $ 2,656 $ (8,971 ) $ (0.15 ) Adjustments affecting comparability Valuation allowance from temporary differences identified in anIRS income tax audit - 2,484 2,484 0.04 Deferred tax valuation allowance - 2,539 2,539 0.04 Non-GAAP as adjusted(b) $ (6,315 ) $ (2,367 ) $ (3,948 ) $ (0.06 ) 20
--------------------------------------------------------------------------------
Table of Contents Three months ended October 30, 2010 Earnings (loss) Loss before Benefit for Net income per diluted (Amounts in thousands, except per share amounts) income taxes income taxes (loss) share GAAP as reported $ (4,190 ) $ (6,044 ) $ 1,854 $ 0.03 Adjustments affecting comparability Restructuring charges(a) 100 (40 ) 60 - Separation expenses(a) 953 (383 ) 570 0.01 Tax benefit from a change in accounting methods for tax purposes - (6,082 ) (6,082 ) (0.10 ) Deferred tax valuation allowance and reserve for uncertain tax positions - 1,695 1,695 0.03 Non-GAAP as adjusted $ (3,137 ) $ (1,234 ) $ (1,903 ) $ (0.03 ) Nine months ended October 29, 2011 Provision Loss per Loss before (benefit) for diluted
(Amounts in thousands, except per share amounts) income taxes income taxes Net loss share GAAP as reported
$ (25,279 ) $ 2,768 $ (28,047 ) $ (0.46 ) Adjustments affecting comparability Valuation allowance from temporary differences identified in anIRS income tax audit - 2,484 2,484 0.04 Deferred tax valuation allowance - 10,162 10,162 0.17 Non-GAAP as adjusted $ (25,279 ) $ (9,878 ) $ (15,401 ) $ (0.25 ) Nine months ended October 30, 2010 Provision Loss per Loss before (benefit) for diluted
(Amounts in thousands, except per share amounts) income taxes income taxes Net loss share GAAP as reported
$ (79,255 ) $ 12,223 $ (91,478 ) $ (1.54 ) Adjustments affecting comparability Restructuring charges(a) 2,163 (870 ) 1,293 0.02 Separation expenses(a) 953 (383 ) 570 0.01New York & Company asset impairments and disposals(a) 15,725 (6,321 ) 9,404 0.16 Tax benefit from a change in accounting methods for tax purposes - (6,082 ) (6,082 ) (0.10 ) Deferred tax valuation allowance and reserve for uncertain tax positions - 50,189 50,189 0.84 Non-GAAP as adjusted $ (60,414 ) $ (24,310 ) $ (36,104 ) $ (0.61 )
--------------------------------------------------------------------------------
Âş (a) Âş The tax effect is calculated using a 40.2% effective tax rate. Âş (b) Âş Amounts may not add due to rounding.
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 21
--------------------------------------------------------------------------------
Table of Contents
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 ofOctober 29, 2011 . The following tables contain information regarding the Company's liquidity and capital resources: October 29, January 29, October 30, 2011 2011 2010 (Amounts in thousands) Cash and cash equivalents $ 20,666 $ 77,392 $ 22,461 Working capital $ 31,024 $ 42,765 $ 24,903 Nine months Nine months ended ended October 29, October 30, 2011 2010 (Amounts in thousands)
Net cash used in operating activities $ (53,666 ) $ (57,373 )
Net cash used in investing activities $ (9,367 ) $ (12,053 )
Net cash provided by financing activities $ 6,307 $ 4,591
Net decrease in cash and cash equivalents $ (56,726 ) $ (64,835 )
Operating Activities Net cash used in operating activities was$53.7 million for the nine months endedOctober 29, 2011 , as compared to$57.4 million for the nine months endedOctober 30, 2010 . The decrease in net cash used in operating activities during the nine months endedOctober 29, 2011 , as compared to the nine months endedOctober 30, 2010 , is primarily due to a lower net loss and changes in accounts receivable, income taxes receivable and income taxes payable, partially offset by changes in inventories, prepaid expenses, accounts payable, accrued expenses, deferred rent and other assets and liabilities.
Investing Activities
Net cash used in investing activities was$9.4 million for the nine months endedOctober 29, 2011 , as compared to$12.1 million for the nine months endedOctober 30, 2010 . Net cash used in investing activities during the nine months endedOctober 29, 2011 reflects capital expenditures of$7.0 million related to the remodeling of 10 existing stores and$2.4 million for non-store capital projects. Net cash used in investing activities during the nine months endedOctober 30, 2010 reflects capital expenditures of$8.9 million related to the construction of 21 new stores and the remodeling of six existing stores, and$4.1 million related to non-store capital projects, partially offset by$0.9 million of proceeds from the sale of fixed assets. As ofOctober 29, 2011 , the Company operated 542 stores, including 26New York & Company Outlet stores. The Company plans to end fiscal year 2011 with approximately 529 stores, including 27New York & Company Outlet stores, and 2.8 million selling square feet. 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 was$6.3 million for the nine months endedOctober 29, 2011 , as compared to$4.6 million for the nine months endedOctober 30, 2010 . Net cash provided by financing activities for the nine months endedOctober 29, 2011 consists of$12.0 million of proceeds from borrowings under the Company's revolving credit facility and$2.2 million of proceeds from the 22
--------------------------------------------------------------------------------
Table of Contents
exercise of stock options, partially offset by payments against the Company's term loan totaling$7.5 million and the payment of$0.4 million of financing costs in connection with the completion of the Company's amended credit facility onAugust 10, 2011 . Net cash provided by financing activities for the nine months endedOctober 30, 2010 consists primarily of$21.0 million of proceeds from borrowings under the Company's revolving credit facility, partially offset by a$12.0 million repayment of borrowings under the Company's revolving credit facility and quarterly payments against the Company's previously outstanding term loan of$4.5 million .
Long-Term Debt and Credit Facilities
OnAugust 10, 2011 ,Lerner New York, Inc. ,Lernco, Inc. andLerner New York Outlet, Inc. , wholly-owned indirect subsidiaries ofNew York & Company, Inc. , entered into a Third Amended and Restated Loan and Security Agreement (the "Loan Agreement") withWells Fargo Bank, N.A. , as Agent and sole lender. The obligations under the Loan Agreement are guaranteed byNew York & Company, Inc. and its other subsidiaries. The Loan Agreement amended and restated the Second Amended and Restated Loan and Security Agreement (the "Existing Agreement"), datedAugust 22, 2007 , amongLerner New York, Inc. ,Lernco, Inc. , andLerner New York Outlet, Inc. (as successor-in-interest toJasmine Company, Inc. ) as borrowers, together with the Agent and the lenders party thereto, as amended. The Existing Agreement was scheduled to mature onMarch 17, 2012 . Concurrent with the closing of the Loan Agreement, the Company repaid in full the$4.5 million outstanding balance on the term loan under the Existing Agreement and wrote off$0.1 million of unamortized deferred financing costs related to the Existing Agreement. The Loan Agreement provides the Company with up to$100 million of credit, consisting of a$75 million revolving credit facility (which includes a sub-facility 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. Furthermore, the amendments to the Existing Agreement provide for, but are not limited to: (i) an extension of the term of the credit facility toAugust 10, 2016 , (ii) a modest increase in interest rates and certain fees as described in greater detail below, and (iii) a reduction in financial covenants. 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 lenders 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 a proportion of 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 ofOctober 29, 2011 , the Company had availability under its revolving credit facility of$53.7 million , net of letters of credit outstanding of$8.3 million and revolving loans outstanding of$12.0 million , as compared to availability of$46.3 million , net of letters 23
--------------------------------------------------------------------------------
Table of Contents
of credit outstanding of$7.2 million and no revolving loans outstanding, as ofJanuary 29, 2011 , and$62.2 million , net of letters of credit outstanding of$8.8 million and revolving loans outstanding of$9.0 million , as ofOctober 30, 2010 . The lenders have been granted a pledge of the common stock ofLerner Holding and certain of its subsidiaries, and a first priority security interest in substantially all other tangible and intangible assets ofNew 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 inventory valuation, impairment of long-lived assets, goodwill and other 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 for the fiscal year endedJanuary 29, 2011 .
Adoption of New Accounting Standards
InMay 2011 , the FASB issued Accounting Standards Update No. 2011-04, "Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in GAAP and IFRSs" ("ASU 2011-04"), which amends ASC 820. ASU 2011-04 improves the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with GAAP and International Financial Reporting Standards. The amended guidance changes the wording used to describe many requirements in GAAP for measuring fair value and for disclosing information about fair value measurements. Additionally, the amendments clarify the FASB's intent about the application of existing fair value measurement requirements. While many of the amendments to GAAP are not expected to have a significant effect on practice, the new guidance changes some fair value measurement principles and disclosure requirements. ASU 2011-04 is effective for interim and annual periods beginning afterDecember 15, 2011 and will be applied prospectively. Early application by public entities is not permitted. The Company does not anticipate that the adoption of ASU 2011-04 will have a material impact on its financial position and results of operations. InJune 2011 , the FASB issued Accounting Standards Update No. 2011-05, "Presentation of Comprehensive Income" ("ASU 2011-05"), which amends FASB ASC Topic 220, "Comprehensive Income." The objective of ASU 2011-05 is to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. The amendments in this standard eliminate the option to present components of other comprehensive income as part of the statement of stockholders' equity. The amendments in this standard require that all nonowner changes in stockholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. ASU 2011-05 is effective for interim and annual periods beginning afterDecember 15, 2011 and will be applied retrospectively. Early adoption is permitted, because compliance with the amendments is already permitted. The Company's adoption of ASU 2011-05 will not have an impact on its financial position and results of operations. 24
--------------------------------------------------------------------------------
Table of Contents
| Wordcount: | 6734 |
Center Bancorp, Inc. Repurchases the Warrants Issued Under TARP Capital Purchase Program
Advisor News
- Why you should discuss insurance with HNW clients
- Trump announces health care plan outline
- House passes bill restricting ESG investments in retirement accounts
- How pre-retirees are approaching AI and tech
- Todd Buchanan named president of AmeriLife Wealth
More Advisor NewsAnnuity News
- Great-West Life & Annuity Insurance Company Trademark Application for “EMPOWER READY SELECT” Filed: Great-West Life & Annuity Insurance Company
- Retirees drive demand for pension-like income amid $4T savings gap
- Reframing lifetime income as an essential part of retirement planning
- Integrity adds further scale with blockbuster acquisition of AIMCOR
- MetLife Declares First Quarter 2026 Common Stock Dividend
More Annuity NewsHealth/Employee Benefits News
- Reed: 2026 changes ABLE accounts benefit potential beneficiaries
- Sickest patients face insurance denials despite policy fixes
- Far fewer people buy Obamacare coverage as insurance premiums spike
- MARKETPLACE 2026 OPEN ENROLLMENT PERIOD REPORT: NATIONAL SNAPSHOT, JANUARY 12, 2026
- Trump wants Congress to take up health plan
More Health/Employee Benefits NewsLife Insurance News