UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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for the quarterly period ended October 31, 2009 |
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OR |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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for the transition period from to . |
COMMISSION FILE NUMBER: 1-32315
NEW YORK & COMPANY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE (State of incorporation) |
33-1031445 (I.R.S. Employer Identification No.) |
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450 West 33rd Street 5th Floor New York, New York 10001 (Address of Principal Executive Offices, including Zip Code) |
(212) 884-2000 (Registrant's Telephone Number, Including Area Code) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer ý | Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
As of November 27, 2009, the registrant had 59,410,927 shares of common stock outstanding.
i
New York & Company, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
(Amounts in thousands, except per share amounts) | Three months ended October 31, 2009 |
Three months ended November 1, 2008 |
Nine months ended October 31, 2009 |
Nine months ended November 1, 2008 |
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---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net sales |
$ | 227,949 | $ | 249,027 | $ | 708,629 | $ | 814,764 | ||||||
Cost of goods sold, buying and occupancy costs |
170,219 | 186,089 | 535,953 | 579,503 | ||||||||||
Gross profit |
57,730 | 62,938 | 172,676 | 235,261 | ||||||||||
Selling, general and administrative expenses |
68,656 | 76,070 | 200,024 | 222,573 | ||||||||||
Operating (loss) income |
(10,926 | ) | (13,132 | ) | (27,348 | ) | 12,688 | |||||||
Interest expense, net of interest income of $33, $293, $110, and $958, respectively |
179 | 232 | 568 | 412 | ||||||||||
(Loss) income from continuing operations before income taxes |
(11,105 | ) | (13,364 | ) | (27,916 | ) | 12,276 | |||||||
(Benefit) provision for income taxes |
(4,803 | ) | (5,372 | ) | (11,897 | ) | 4,935 | |||||||
(Loss) income from continuing operations |
(6,302 | ) | (7,992 | ) | (16,019 | ) | 7,341 | |||||||
Income from discontinued operations, net of taxes |
| 68 | 3 | 235 | ||||||||||
Net (loss) income |
$ | (6,302 | ) | $ | (7,924 | ) | $ | (16,016 | ) | $ | 7,576 | |||
Basic (loss) earnings per share: |
||||||||||||||
Basic (loss) earnings per share from continuing operations |
$ | (0.11 | ) | $ | (0.13 | ) | $ | (0.27 | ) | $ | 0.12 | |||
Basic earnings per share from discontinued operations |
| | | 0.01 | ||||||||||
Basic (loss) earnings per share |
$ | (0.11 | ) | $ | (0.13 | ) | $ | (0.27 | ) | $ | 0.13 | |||
Diluted (loss) earnings per share: |
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Diluted (loss) earnings per share from continuing operations |
$ | (0.11 | ) | $ | (0.13 | ) | $ | (0.27 | ) | $ | 0.12 | |||
Diluted earnings per share from discontinued operations |
| | | | ||||||||||
Diluted (loss) earnings per share |
$ | (0.11 | ) | $ | (0.13 | ) | $ | (0.27 | ) | $ | 0.12 | |||
Weighted average shares outstanding: |
||||||||||||||
Basic shares of common stock |
59,161 | 59,858 | 59,508 | 59,520 | ||||||||||
Diluted shares of common stock |
59,161 | 59,858 | 59,508 | 61,398 | ||||||||||
See accompanying notes.
1
New York & Company, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Amounts in thousands, except per share amounts) | October 31, 2009 |
January 31, 2009 |
November 1, 2008 |
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---|---|---|---|---|---|---|---|---|---|---|---|
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(Unaudited) |
(Audited) |
(Unaudited) |
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Assets |
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Current assets: |
|||||||||||
Cash and cash equivalents |
$ | 39,297 | $ | 54,280 | $ | 41,152 | |||||
Accounts receivable |
14,194 | 11,993 | 15,605 | ||||||||
Income taxes receivable |
4,947 | 10,202 | 4,274 | ||||||||
Inventories, net |
117,438 | 104,861 | 157,906 | ||||||||
Prepaid expenses |
23,229 | 24,610 | 29,887 | ||||||||
Other current assets |
2,506 | 2,390 | 3,663 | ||||||||
Current assets of discontinued operations |
108 | 110 | 305 | ||||||||
Total current assets |
201,719 | 208,446 | 252,792 | ||||||||
Property and equipment, net |
194,868 | 217,248 | 247,547 | ||||||||
Intangible assets |
14,879 | 14,879 | 14,879 | ||||||||
Deferred income taxes |
21,926 | 14,897 | | ||||||||
Other assets |
1,086 | 1,343 | 1,260 | ||||||||
Total assets |
$ | 434,478 | $ | 456,813 | $ | 516,478 | |||||
Liabilities and stockholders' equity |
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Current liabilities: |
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Current portionlong-term debt |
$ | 6,000 | $ | 6,000 | $ | 6,000 | |||||
Accounts payable |
79,989 | 68,431 | 101,400 | ||||||||
Accrued expenses |
51,443 | 61,121 | 53,916 | ||||||||
Deferred income taxes |
2,774 | 2,020 | 3,546 | ||||||||
Current liabilities of discontinued operations |
265 | 275 | 757 | ||||||||
Total current liabilities |
140,471 | 137,847 | 165,619 | ||||||||
Long-term debt, net of current portion |
9,000 | 13,500 | 15,000 | ||||||||
Deferred income taxes |
| | 2,824 | ||||||||
Deferred rent |
73,203 | 75,848 | 77,060 | ||||||||
Other liabilities |
7,101 | 7,122 | 4,680 | ||||||||
Total liabilities |
229,775 | 234,317 | 265,183 | ||||||||
Stockholders' equity: |
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Common stock, voting, par value $0.001; 300,000 shares authorized; 59,306, 60,508 and 59,973 shares issued and outstanding at October 31, 2009, January 31, 2009, and November 1, 2008, respectively |
60 | 60 | 60 | ||||||||
Additional paid-in capital |
153,950 | 152,330 | 151,965 | ||||||||
Retained earnings |
56,142 | 72,158 | 99,550 | ||||||||
Accumulated other comprehensive loss |
(2,052 | ) | (2,052 | ) | (280 | ) | |||||
Treasury stock at cost; 1,000 shares at October 31, 2009 |
(3,397 | ) | | | |||||||
Total stockholders' equity |
204,703 | 222,496 | 251,295 | ||||||||
Total liabilities and stockholders' equity |
$ | 434,478 | $ | 456,813 | $ | 516,478 | |||||
See accompanying notes.
2
New York & Company, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Amounts in thousands) | Nine months ended October 31, 2009 |
Nine months ended November 1, 2008 |
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---|---|---|---|---|---|---|---|---|---|
Operating activities |
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Net (loss) income |
$ | (16,016 | ) | $ | 7,576 | ||||
Less: Income from discontinued operations, net of taxes |
3 | 235 | |||||||
(Loss) income from continuing operations |
(16,019 | ) | 7,341 | ||||||
Adjustments to reconcile net (loss) income to net cash provided by operating activities of continuing operations: |
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Depreciation and amortization |
31,383 | 32,130 | |||||||
Amortization of deferred financing costs |
162 | 133 | |||||||
Share-based compensation expense |
1,387 | 1,274 | |||||||
Deferred income taxes |
(6,275 | ) | (1,305 | ) | |||||
Changes in operating assets and liabilities: |
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Accounts receivable |
(2,201 | ) | 2,918 | ||||||
Income taxes receivable |
5,255 | 7,456 | |||||||
Inventories, net |
(12,577 | ) | (53,983 | ) | |||||
Prepaid expenses |
1,381 | (7,896 | ) | ||||||
Accounts payable |
11,558 | 24,223 | |||||||
Accrued expenses |
(9,678 | ) | 298 | ||||||
Deferred rent |
(2,645 | ) | 4,523 | ||||||
Other assets and liabilities |
(142 | ) | (1,750 | ) | |||||
Net cash provided by operating activities of continuing operations |
1,589 | 15,362 | |||||||
Investing activities |
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Acquisition of trademarks |
| (36 | ) | ||||||
Proceeds from sale of fixed assets |
| 260 | |||||||
Capital expenditures |
(8,903 | ) | (40,253 | ) | |||||
Net cash used in investing activities of continuing operations |
(8,903 | ) | (40,029 | ) | |||||
Financing activities |
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Repayment of debt |
(4,500 | ) | (4,500 | ) | |||||
Purchase of treasury stock |
(3,417 | ) | | ||||||
Proceeds from exercise of stock options |
74 | 148 | |||||||
Excess tax benefit from exercise of stock options |
179 | 2,336 | |||||||
Net cash used in financing activities of continuing operations |
(7,664 | ) | (2,016 | ) | |||||
Cash flows from discontinued operations |
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Operating cash flows |
(6 | ) | (6,122 | ) | |||||
Investing cash flows |
| | |||||||
Financing cash flows |
| | |||||||
Net cash used in discontinued operations |
(6 | ) | (6,122 | ) | |||||
Net decrease in cash and cash equivalents |
(14,984 | ) | (32,805 | ) | |||||
Cash and cash equivalents at beginning of period (including cash at discontinued operations of $1 and $223, respectively) |
54,281 | 73,957 | |||||||
Cash and cash equivalents at end of period (represents cash at continuing operations) |
$ | 39,297 | $ | 41,152 | |||||
See accompanying notes.
3
New York & Company, Inc.
Notes to Condensed Consolidated Financial Statements
October 31, 2009
(Unaudited)
1. Organization and Basis of Presentation
New York & Company, Inc. (together with its subsidiaries, collectively the "Company") is a leading specialty retailer of fashion oriented, moderately priced women's apparel. The Company designs and sources its proprietary branded New York & Company merchandise sold exclusively through its national network of retail stores and E-commerce 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 October 31, 2009, the Company operated 592 stores in 44 states.
The accompanying condensed consolidated financial statements include the accounts for New York & Company, Inc. and Lerner New York Holding, Inc. ("Lerner Holding") and its wholly-owned subsidiaries, which include Lerner New York, Inc. (and its wholly-owned subsidiaries, including the discontinued business at Jasmine Company, Inc.), Lernco, Inc. and Nevada Receivable Factoring, Inc. On a stand-alone basis, without the consolidation of Lerner Holding and its subsidiaries, New York & Company, Inc. has no significant independent assets or operations. All significant intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, the accompanying 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.
The condensed consolidated financial statements as of October 31, 2009 and November 1, 2008 and for the thirteen weeks ("three months") and thirty-nine weeks ("nine months") ended October 31, 2009 and November 1, 2008 are unaudited and are presented pursuant to the rules and regulations of the U.S. 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 52-week fiscal year ended January 31, 2009 ("fiscal year 2008"), which were filed with the Company's Annual Report on Form 10-K with the SEC on April 7, 2009. The 52-week fiscal year ending January 30, 2010 is referred to herein as "fiscal year 2009." The Company's fiscal year is a 52- or 53-week year that ends on the Saturday closest to January 31.
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. Restructuring
In response to the ongoing deterioration of the macroeconomic environment and the resulting impact on consumer spending in the retail sector during the latter part of fiscal year 2008, the Company initiated a comprehensive review of its business and on January 8, 2009 announced the launch of a multi-year restructuring and cost reduction program. As previously disclosed, this program is expected to generate approximately $175 million in pre-tax savings over a five year period, of which approximately $30 million is expected to be realized during fiscal year 2009. This program is designed to streamline the Company's organization by reducing costs and eliminating underperforming assets while enhancing efficiency and profitability.
4
New York & Company, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
October 31, 2009
(Unaudited)
2. Restructuring (Continued)
The key components of the restructuring and cost reduction program include:
In total, the Company recorded pre-tax restructuring charges of $24.5 million during the fourth quarter of fiscal year 2008, which includes a non-cash charge of $22.9 million related to the impairment of store assets and a $1.7 million cash charge related primarily to severance and other costs necessary to implement the restructuring and cost reduction program. As of January 31, 2009, $1.0 million of severance related accruals are included in accrued expenses on the consolidated balance sheet. As of October 31, 2009, all severance liabilities related to the restructuring program had been substantially paid. The Company does not currently expect to record any material restructuring charges for these matters during the remainder of fiscal year 2009.
3. Discontinued Operations
On October 18, 2007, the Company announced its decision to close all stores operated by the Company's subsidiary, Jasmine Company, Inc. ("JasmineSola"), by the end of the fourth quarter of fiscal year 2007 (February 2, 2008). JasmineSola was a women's retailer of upscale and contemporary apparel, footwear and accessories sold through its chain of JasmineSola branded stores, which the Company acquired on July 19, 2005. The Company decided to exit the JasmineSola business after a thorough assessment and analysis. This decision enabled the Company to focus financial and management resources on its New York & Company brand.
5
New York & Company, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
October 31, 2009
(Unaudited)
3. Discontinued Operations (Continued)
The operating results of JasmineSola, which are being presented as discontinued operations, are as follows:
|
Three months ended October 31, 2009 |
Three months ended November 1, 2008 |
Nine months ended October 31, 2009 |
Nine months ended November 1, 2008 |
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(Amounts in thousands) |
||||||||||||
Net sales |
$ | | $ | | $ | | $ | | |||||
Income from discontinued operations before income taxes |
| 194 | 4 | 361 | |||||||||
Income tax provision |
| 126 | 1 | 126 | |||||||||
Income from discontinued operations, net of taxes |
$ | | $ | 68 | $ | 3 | $ | 235 | |||||
4. Earnings Per Share
Basic (loss) earnings per share are computed by dividing net (loss) income by the weighted average number of shares of common stock outstanding for the period. Except when the effect would be anti-dilutive at the continuing operations level, diluted (loss) earnings per share are calculated based on the weighted average number of outstanding shares of common stock plus the dilutive effect, using the
6
New York & Company, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
October 31, 2009
(Unaudited)
4. Earnings Per Share (Continued)
treasury stock method, of stock options as if they were exercised and unvested restricted stock as if it were vested. A reconciliation between basic and diluted (loss) earnings per share is as follows:
|
Three months ended October 31, 2009 |
Three months ended November 1, 2008 |
Nine months ended October 31, 2009 |
Nine months ended November 1, 2008 |
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(Amounts in thousands, except per share amounts) |
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(Loss) income from continuing operations |
$ | (6,302 | ) | $ | (7,992 | ) | $ | (16,019 | ) | $ | 7,341 | |||
Income from discontinued operations, net of taxes |
| 68 | 3 | 235 | ||||||||||
Net (loss) income |
$ | (6,302 | ) | $ | (7,924 | ) | $ | (16,016 | ) | $ | 7,576 | |||
Basic (loss) earnings per share |
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Weighted average shares outstanding: |
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Basic shares of common stock |
59,161 | 59,858 | 59,508 | 59,520 | ||||||||||
Basic (loss) earnings per share from continuing operations |
$ | (0.11 | ) | $ | (0.13 | ) | $ | (0.27 | ) | $ | 0.12 | |||
Basic earnings per share from discontinued operations |
| | | 0.01 | ||||||||||
Basic (loss) earnings per share |
$ | (0.11 | ) | $ | (0.13 | ) | $ | (0.27 | ) | $ | 0.13 | |||
Diluted (loss) earnings per share |
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Weighted average shares outstanding: |
||||||||||||||
Basic shares of common stock |
59,161 | 59,858 | 59,508 | 59,520 | ||||||||||
Plus impact of stock options and restricted stock, net |
| | | 1,878 | ||||||||||
Diluted shares of common stock |
59,161 | 59,858 | 59,508 | 61,398 | ||||||||||
Diluted (loss) earnings per share from continuing operations |
$ | (0.11 | ) | $ | (0.13 | ) | $ | (0.27 | ) | $ | 0.12 | |||
Diluted earnings per share from discontinued operations |
| | | | ||||||||||
Diluted (loss) earnings per share |
$ | (0.11 | ) | $ | (0.13 | ) | $ | (0.27 | ) | $ | 0.12 | |||
The calculation of diluted loss per share for the three and nine months ended October 31, 2009 excludes options to purchase 3,127,388 and 3,598,970 shares, respectively, due to their anti-dilutive effect. The calculation of diluted (loss) earnings per share for the three and nine months ended November 1, 2008 excludes options to purchase 3,052,364 and 1,396,452 shares, respectively, due to their anti-dilutive effect.
7
New York & Company, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
October 31, 2009
(Unaudited)
5. Share-Based Compensation
The Company accounts for all share-based payments in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("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 $0.4 million and $0.5 million for the three months ended October 31, 2009 and November 1, 2008, respectively, and $1.4 million and $1.3 million for the nine months ended October 31, 2009 and November 1, 2008, respectively.
During the nine months ended October 31, 2009, the Company issued 49,000 shares of restricted stock and 114,715 shares of common stock were issued upon the exercise of stock options.
On November 19, 2008, certain key executives were granted 366,182 shares of restricted stock, subject to performance vesting requirements based on the Company's operating income level achieved for the first two fiscal quarters of fiscal year 2009 ("Spring 2009"). As a result of the operating loss reported by the Company for Spring 2009, all 366,182 shares of restricted stock were forfeited.
At the Company's 2009 Annual Meeting of Stockholders on June 29, 2009, the Company's stockholders approved, among other matters: (i) an amendment to the Company's 2006 Long-Term Incentive Plan to increase the number of shares reserved for issuance by 2,500,000 shares and (ii) a one-time stock option exchange program.
The aggregate number of shares of the Company's common stock that may now be issued under the New York & Company, Inc. Amended and Restated 2006 Long-Term Incentive Plan (the "Amended and Restated 2006 Plan") is 4,668,496 shares, and the maximum number of shares which may be used for awards other than stock options or stock appreciation rights is 1,750,000 shares.
The Company completed a value-for-value stock option exchange program on June 29, 2009, subsequent to receiving stockholder approval. The stock option exchange program was open to associates of the Company, excluding the Chief Executive Officer, who held stock options with an exercise price greater than or equal to $12.43 per share. The program was not available to any former associates or members of the Company's board of directors. Pursuant to the stock option exchange program, 684,435 eligible stock options were canceled and replaced with 454,687 replacement stock options at an exercise price equal to the Company's closing stock price on the new option grant date (June 29, 2009). The exchange ratio was calculated such that the value of the replacement options would equal the value of the canceled options, determined in accordance with the Black-Scholes option valuation model, with no incremental cost incurred by the Company. The replacement options have the same vesting schedule as the tendered eligible options, except that the vesting schedule for any options that were already vested on June 29, 2009 or that would have vest within two years of June 29, 2009 was reset such that those options will vest upon the two-year anniversary of the new option grant date, so long as the eligible option holder continues to provide services to the Company during the two-year period. The other terms and conditions of each replacement option grant are substantially similar to those of the surrendered options it replaced. Each replacement option was granted under the Amended and Restated 2006 Plan.
8
New York & Company, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
October 31, 2009
(Unaudited)
6. 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 8% of the Company's total employees. The Company's collective bargaining agreement with the Local 1102 unit of the Retail, Wholesale and Department Store Union (RWDSU) AFL-CIO is set to expire on January 31, 2010. The Company anticipates that the collective bargaining agreement with Local 1102 will be extended.
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 plan is to contribute annually the amount necessary to provide for benefits based on accrued service. The Company does not anticipate the need for a material contribution to the plan for the remainder of the current fiscal year. Net periodic benefit cost includes the following components:
|
Three months ended October 31, 2009 |
Three months ended November 1, 2008 |
Nine months ended October 31, 2009 |
Nine months ended November 1, 2008 |
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---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(Amounts in thousands) |
||||||||||||
Service cost |
$ | 67 | $ | 61 | $ | 201 | $ | 184 | |||||
Interest cost |
139 | 138 | 417 | 413 | |||||||||
Expected return on plan assets |
(103 | ) | (173 | ) | (309 | ) | (519 | ) | |||||
Amortization of unrecognized losses |
36 | | 108 | | |||||||||
Net periodic benefit cost |
$ | 139 | $ | 26 | $ | 417 | $ | 78 | |||||
7. Income Taxes
The effective tax rate for the three months ended October 31, 2009 reflects a benefit of 43.3%, as compared to a benefit of 40.2% for the three months ended November 1, 2008. The effective tax rate for the nine months ended October 31, 2009 reflects a benefit of 42.6%, as compared to a provision of 40.2% for the nine months ended November 1, 2008. The change in the effective tax rates for the three and nine months ended October 31, 2009, as compared to the same periods last year, is primarily due to tax benefits recognized during the first and third quarters of the current fiscal year in connection with the reduction of tax positions for prior years.
The Company files U.S. federal income tax returns and income tax returns in various state and local jurisdictions. In November 2008, the Internal Revenue Service ("IRS") began its examination of the Company's U.S. federal income tax return for the 2006 tax year. At the end of October 2009, the IRS communicated its intention to audit the Company's 2007 federal income tax return. In addition, the Company is subject to U.S. federal income tax examinations for the 2008 tax year and each year thereafter and state and local income tax examinations for the 2005 tax year and each year thereafter.
9
New York & Company, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
October 31, 2009
(Unaudited)
7. Income Taxes (Continued)
At January 31, 2009, the Company reported a total liability of $3.6 million for unrecognized tax benefits, including interest and penalties, all of which would impact the Company's effective tax rate if reversed. There were no material changes to the liability for unrecognized tax benefits during the nine months ended October 31, 2009. The Company does not anticipate any significant increases or decreases to the balance of unrecognized tax benefits during the next 12 months.
The Company accrues interest and penalties related to unrecognized tax benefits in income tax expense.
8. Long-Term Debt and Credit Facilities
The Company's credit facilities currently consist of a term loan, of which $15.0 million was outstanding at October 31, 2009, and a $90.0 million revolving credit facility (which includes a sub-facility available for issuance of letters of credit of up to $75.0 million), both having a maturity date of March 17, 2012.
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 October 31, 2009, the Company had availability under its revolving credit facility of $73.6 million, net of letters of credit outstanding of $7.0 million, as compared to availability of $74.6 million, net of letters of credit outstanding of $7.3 million, as of November 1, 2008.
The revolving loans under the credit facilities bear interest, at the Company's option, either at a floating rate equal to the Eurodollar rate plus a margin of between 1.00% and 1.25% per year, depending upon the Company's financial performance, or the Prime rate. The Company pays the lenders under the revolving credit facility a monthly fee on outstanding commercial letters of credit at a rate of 0.625% per year and on standby letters of credit at a rate of between 1.00% and 1.25% per year, depending upon the Company's financial performance, plus a monthly fee on a proportion of the unused commitments under that facility at a rate of 0.20% per year. The term loan bears interest at a floating rate equal to the Eurodollar rate plus 2.50% per year. If any default were to exist under the revolving credit facility and for so long as such default were to continue, at the option of the agent or lenders, the monthly fee on outstanding standby letters of credit may increase to 3.25% per year, interest on the revolving loans may increase to 3.25% per year above the Eurodollar rate for Eurodollar rate loans and 2.00% per year above the Prime rate for all Prime rate loans, and interest on the term loan may increase to the Eurodollar rate plus 4.50% per year.
The Company's credit facilities contain certain covenants, including restrictions on the Company's ability to pay dividends on its common stock, 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. The terms of the Company's credit facilities also subject it to a minimum fixed charge coverage ratio of 1.00 to 1.00, if the Company's borrowing availability under its revolving credit facility plus qualified cash falls below $30.0 million ($20.0 million during March and November). If the Company fully repays its existing term loan, the Company will only be subject to the minimum fixed charge coverage ratio in the
10
New York & Company, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
October 31, 2009
(Unaudited)
8. Long-Term Debt and Credit Facilities (Continued)
event that borrowing availability under its revolving credit facility falls below $12.5 million. In addition, the Company is required at all times to maintain minimum borrowing availability under its credit facility of $10.0 million. The Company is currently in compliance with the financial covenants referred to above.
The lenders have been granted a pledge of the common stock of Lerner Holding 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 facilities. In addition, New York & Company, Inc. and certain of its subsidiaries have fully and unconditionally guaranteed the credit facilities, and such guarantees are joint and several.
9. Fair Value Measurements
As described in footnote 11, "New Accounting Pronouncements," on February 3, 2008 the Company adopted ASC Topic 820, "Fair Value Measurements and Disclosures" ("ASC 820") as it relates to financial assets and liabilities and any other assets and liabilities that are recognized or disclosed at fair value on a recurring basis. On February 1, 2009, the Company adopted the remaining provisions of ASC 820 for all nonfinancial assets and liabilities measured on a non-recurring basis. ASC 820 establishes a common definition for fair value to be applied to U.S. Generally Accepted Accounting Principles ("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 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, accounts payable and long-term debt. 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 carrying value on the balance sheet for the Company's long-term debt approximates its fair value due to the variable interest rate it carries, and as such it is classified within level 2 of the fair value hierarchy.
10. Share Repurchases
On November 26, 2008, the Company announced that its board of directors had authorized the repurchase of up to 3,750,000 shares over the 12 month period ending November 23, 2009. During the
11
New York & Company, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
October 31, 2009
(Unaudited)
10. Share Repurchases (Continued)
nine months ended October 31, 2009, the Company repurchased 1,000,000 shares of its common stock at a cost of approximately $3.4 million.
On November 18, 2009, the Company's board of directors authorized the extension of the share repurchase program for an additional 12 month period ending on November 23, 2010. Repurchases, if any, will be made from time to time in the manner the Company believes appropriate, through open market or private transactions, including through pre-established trading plans.
11. New Accounting Pronouncements
In September 2006, the FASB issued ASC Topic 820, "Fair Value Measurements and Disclosures." ASC 820 establishes a common definition for fair value to be applied to U.S. GAAP guidance requiring the use of fair value, establishes a framework for measuring fair value, and expands the disclosure about such fair value measurements. The application of ASC 820 as it relates to financial assets and liabilities was effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. On February 12, 2008, the FASB agreed to delay the effective date of ASC 820 for all nonfinancial assets and liabilities, except those that are recognized or disclosed at fair value in the financial statements on at least an annual basis, to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The Company adopted ASC 820 as it relates to financial assets and liabilities and any other assets and liabilities that are recognized or disclosed at fair value on a recurring basis in fiscal year 2008, and on February 1, 2009, the Company adopted the remaining provisions of ASC 820 for all nonfinancial assets and liabilities disclosed at fair value on a non-recurring basis. The provisions of ASC 820 were applied prospectively as of the beginning of the fiscal year. The Company's adoption of ASC 820 did not have a material impact on its financial position or results of operations.
In April 2009, the FASB issued ASC Topic 825, "Financial Instruments," ("ASC 825") to require disclosures about fair value of financial instruments for interim periods of publicly-traded companies as well as in annual financial statements. ASC 825 also require those disclosures in summarized financial information at interim reporting periods. ASC 825 was effective for interim reporting periods ending after June 15, 2009. The Company adopted ASC 825 effective August 1, 2009. The Company's adoption of ASC 825 did not have a material impact on its financial position or results of operations.
In May 2009, the FASB issued ASC Topic 855, "Subsequent Events" ("ASC 855") which establishes general standards of accounting for the disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued. ASC 855 requires the disclosure of the date through which an entity has evaluated subsequent events and whether that date represents the date the financial statements were issued or were available to be issued. ASC 855 was effective for interim or annual financial periods ending after June 15, 2009 and is applied prospectively. The Company adopted ASC 855 effective August 1, 2009. The Company's adoption of ASC 855 did not have a material impact on its financial position or results of operations.
In June 2009, the FASB issued ASC Topic 105, "Generally Accepted Accounting Principles" ("ASC 105"). ASC 105 establishes the FASB Accounting Standards Codification ("Codification") as the single official source of authoritative GAAP (other than guidance issued by the SEC) recognized by the
12
New York & Company, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
October 31, 2009
(Unaudited)
11. New Accounting Pronouncements (Continued)
FASB to be applied by nongovernmental entities. The GAAP hierarchy will be modified to include only two levels of GAAP: authoritative and non-authoritative. All non-grandfathered non-SEC accounting literature not included in the Codification will become non-authoritative. Changes to the Codification are now communicated through an Accounting Standard Update ("ASU") which is issued for all amendments and updates to authoritative U.S. GAAP. ASC 105 was effective for interim or annual financial periods ending after September 15, 2009. The Company adopted ASC 105 effective October 31, 2009 with no impact on the Company's financial position or results of operations. The Company has cited the relevant parts of the Codification in the current quarter report and will apply the new presentation prospectively.
In August 2009, the FASB issued ASU No. 2009-05, "Fair Value Measurements and DisclosuresMeasuring Liabilities at Fair Value" ("ASU 2009-05"), which amends ASC Topic 820, "Fair Value Measurements and Disclosures." ASU 2009-05 provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value of such liability using one or more of the techniques prescribed by the update. ASU 2009-05 is effective for the first interim or annual reporting period beginning after August 2009. The Company does not anticipate that the adoption of ASU 2009-05 will have a material impact on its financial position or results of operations.
12. Subsequent Events
Management has evaluated all events or transactions that occurred after October 31, 2009 up through December 8, 2009, the date the Company's financial statements were issued. During this period, there were no material recognizable or nonrecognizable subsequent events.
13
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:
14
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 fashion oriented, moderately priced women's apparel. The Company designs and sources its proprietary branded New York & Company merchandise sold exclusively through its national network of retail stores and E-commerce 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 October 31, 2009, the Company operated 592 stores in 44 states.
The deterioration and uncertainty in the macroeconomic environment continued to negatively impact consumer spending on the Company's merchandise during the three months ended October 31, 2009. However, the Company was able to realize a 110 basis point improvement in merchandise margins during the quarter, as compared to third quarter last year, reflecting a positive customer response to the Company's fall merchandise assortment, continued sourcing efficiencies, and controlled promotional activity. In addition, during the month of October, the Company experienced strengthening of its sales trends, posting the strongest monthly comparable store sales in over a year. Despite these positive signs, the Company believes that the business environment will remain challenging and expects promotional activity to accelerate throughout the upcoming holiday season.
Net sales for the three months ended October 31, 2009 decreased 8.5% to $227.9 million, as compared to $249.0 million for the three months ended November 1, 2008. Comparable store sales decreased 8.4% for the three months ended October 31, 2009, as compared to a comparable store sales decrease of 14.0% for the three months ended November 1, 2008. Loss from continuing operations for the three months ended October 31, 2009 was $6.3 million, or $0.11 per diluted share, as compared to a loss from continuing operations of $8.0 million, or $0.13 per diluted share, for the three months
15
ended November 1, 2008. For a discussion of the more significant factors impacting these results, see "Results of Operations" below.
Capital spending for the nine months ended October 31, 2009 was $8.9 million, as compared to $40.3 million for the nine months ended November 1, 2008. The reduction of $31.4 million, as compared to last year, is in-line with the Company's plans to reduce capital expenditures and to conserve cash. During the nine months ended October 31, 2009, the Company opened 11 new stores and closed eight stores, ending the period operating 592 stores, as compared to 600 stores as of November 1, 2008. Total selling square footage as of October 31, 2009 was 3.296 million, as compared to 3.372 million as of November 1, 2008.
The Company ended the quarter with $39.3 million of cash-on-hand and no outstanding borrowings under its revolving credit facility.
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.
General
Net Sales. Net sales consist of sales from comparable and non-comparable stores and the Company's E-commerce 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. Beginning in February 2008, sales from the Company's E-commerce store are included in comparable store sales. 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 E-commerce 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 estimates gift card breakage and records such amount as revenue as gift cards are redeemed. The Company's estimate of gift card breakage is based on analysis of historical redemption patterns as well as the remaining balance of gift cards for which the Company believes the likelihood of redemption to be remote.
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
16
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 October 31, 2009 and November 1, 2008:
|
Three months ended October 31, 2009 |
Three months ended November 1, 2008 |
Nine months ended October 31, 2009 |
Nine months ended November 1, 2008 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net sales |
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||
Cost of goods sold, buying and occupancy costs |
74.7 | % | 74.7 | % | 75.6 | % | 71.1 | % | |||||
Gross profit |
25.3 | % | 25.3 | % | 24.4 | % | 28.9 | % | |||||
Selling, general and administrative expenses |
30.1 | % | 30.6 | % | 28.3 | % | 27.3 | % | |||||
Operating (loss) income |
(4.8 | )% | (5.3 | )% | (3.9 | )% | 1.6 | % | |||||
Interest expense, net |
0.1 | % | 0.1 | % | 0.1 | % | 0.1 | % | |||||
(Loss) income from continuing operations before income taxes |
(4.9 | )% | (5.4 | )% | (4.0 | )% | 1.5 | % | |||||
(Benefit) provision for income taxes |
(2.1 | )% | (2.2 | )% | (1.7 | )% | 0.6 | % | |||||
(Loss) income from continuing operations |
(2.8 | )% | (3.2 | )% | (2.3 | )% | 0.9 | % | |||||
Income from discontinued operations, net of taxes |
| % | | % | | % | | % | |||||
Net (loss) income |
(2.8 | )% | (3.2 | )% | (2.3 | )% | 0.9 | % | |||||
|
Three months ended October 31, 2009 |
Three months ended November 1, 2008 |
Nine months ended October 31, 2009 |
Nine months ended November 1, 2008 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(Dollars in thousands, except square foot data) |
||||||||||||
Selected operating data: |
|||||||||||||
Comparable store sales decrease |
(8.4 | )% | (14.0 | )% | (13.5 | )% | (7.6 | )% | |||||
Net sales per average selling square foot(1) |
$ | 69 | $ | 74 | $ | 215 | $ | 243 | |||||
Net sales per average store(2) |
$ | 385 | $ | 416 | $ | 1,199 | $ | 1,383 | |||||
Average selling square footage per store(3) |
5,568 | 5,620 | 5,568 | 5,620 |
17
|
Three months ended October 31, 2009 |
Three months ended November 1, 2008 |
Nine months ended October 31, 2009 |
Nine months ended November 1, 2008 |
|||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Store Count |
Selling Square Feet |
Store Count |
Selling Square Feet |
Store Count |
Selling Square Feet |
Store Count |
Selling Square Feet |
|||||||||||||||||
Store count and selling square feet: |
|||||||||||||||||||||||||
Stores open, beginning of period |
591 | 3,302,208 | 596 | 3,380,169 | 589 | 3,294,779 | 578 | 3,327,450 | |||||||||||||||||
New stores |
5 | 6,328 | 5 | 22,181 | 11 | 31,755 | 25 | 104,641 | |||||||||||||||||
Closed stores |
(4 | ) | (15,573 | ) | (1 | ) | (8,682 | ) | (8 | ) | (33,571 | ) | (3 | ) | (22,804 | ) | |||||||||
Net impact of remodeled stores on selling square feet |
| 3,280 | | (21,649 | ) | | 3,280 | | (37,268 | ) | |||||||||||||||
Stores open, end of period |
592 | 3,296,243 | 600 | 3,372,019 | 592 | 3,296,243 | 600 | 3,372,019 | |||||||||||||||||
Three Months Ended October 31, 2009 Compared to Three Months Ended November 1, 2008
Net Sales. Net sales for the three months ended October 31, 2009 decreased 8.5% to $227.9 million, as compared to $249.0 million for the three months ended November 1, 2008. The decrease in net sales is primarily due to a decrease in comparable store sales of 8.4% for the three months ended October 31, 2009. In the comparable store base, average dollar sales per transaction decreased by 2.6%, and the number of transactions per average store decreased by 6.0%, as compared to the same period last year.
Gross Profit. Gross profit decreased $5.2 million to $57.7 million, or 25.3% of net sales, for the three months ended October 31, 2009, as compared to $62.9 million, or 25.3% of net sales, for the three months ended November 1, 2008. Merchandise margins for the three months ended October 31, 2009 improved by 110 basis points and continue to remain in-line with historical levels. This improvement was offset by a 110 basis point increase in buying and occupancy costs, primarily attributable to the deleveraging resulting from the lower sales levels. In total, buying and occupancy costs decreased by $3.6 million, as compared to the three months ended November 1, 2008, reflecting the impact of the Company's restructuring and cost reduction program.
Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased by $7.4 million to $68.7 million, or 30.1% of net sales, for the three months ended October 31, 2009, as compared to $76.1 million, or 30.6% of net sales, for the three months ended November 1, 2008. The decrease in selling, general and administrative expenses as a percentage of net sales is primarily a result of the savings recognized in connection with the Company's restructuring and cost reduction program and the net impact of charges related to management changes in the prior year and current year, partially offset by the impact of negative comparable store sales. On an average store basis, selling, general and administrative expenses declined by 8.8% during the three months ended October 31, 2009.
Operating Loss. For the reasons discussed above, operating loss for the three months ended October 31, 2009 was $10.9 million, or 4.8% of net sales, as compared to an operating loss of $13.1 million, or 5.3% of net sales, for the three months ended November 1, 2008.
Interest Expense, Net. Net interest expense was $0.2 million for the three months ended October 31, 2009, as compared to $0.2 million for the three months ended November 1, 2008.
Income Tax Benefit. The effective tax rate for the three months ended October 31, 2009 reflects a benefit of 43.3%, as compared to a benefit of 40.2% for the three months ended November 1, 2008. The change in the effective tax rate is primarily due to tax benefits recognized during the third quarter of fiscal year 2009 in connection with the reduction of tax positions for the prior year.
Loss from Continuing Operations. For the reasons discussed above, loss from continuing operations for the three months ended October 31, 2009 was $6.3 million, or 2.8% of net sales, as
18
compared to loss from continuing operations of $8.0 million, or 3.2% of net sales, for the three months ended November 1, 2008.
Income from Discontinued Operations, Net of Taxes. Income from discontinued operations, net of taxes, represents the Company's discontinued JasmineSola business.
Nine Months Ended October 31, 2009 Compared to Nine Months Ended November 1, 2008
Net Sales. Net sales for the nine months ended October 31, 2009 decreased 13.0% to $708.6 million, as compared to $814.8 million for the nine months ended November 1, 2008. The decrease in net sales is primarily due to a decrease in comparable store sales of 13.5% for the nine months ended October 31, 2009. In the comparable store base, average dollar sales per transaction decreased by 5.2%, and the number of transactions per average store decreased by 8.8%, as compared to the same period last year.
Gross Profit. Gross profit decreased $62.6 million to $172.7 million, or 24.4% of net sales, for the nine months ended October 31, 2009, as compared to $235.3 million, or 28.9% of net sales, for the nine months ended November 1, 2008. The 450 basis point decrease in gross profit as a percentage of net sales during the nine months ended October 31, 2009 is due to a 170 basis point decrease in merchandise margins resulting from increased promotional activity and a 280 basis point increase in buying and occupancy costs, primarily attributable to the decline in comparable store sales, partially offset by savings recognized in connection with the Company's restructuring and cost reduction program. In total, buying and occupancy costs decreased by $8.1 million, as compared to the nine months ended November 1, 2008.
Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased by $22.5 million to $200.0 million, or 28.3% of net sales, for the nine months ended October 31, 2009, as compared to $222.6 million, or 27.3% of net sales, for the nine months ended November 1, 2008. The increase in selling, general and administrative expenses as a percentage of net sales is primarily a result of the decrease in comparable store sales, partially offset by savings recognized in connection with the Company's restructuring and cost reduction program. On an average store basis, selling, general and administrative expenses declined by 10.4% during the nine months ended October 31, 2009.
Operating (Loss) Income. For the reasons discussed above, operating loss for the nine months ended October 31, 2009 was $27.3 million, or 3.9% of net sales, as compared to operating income of $12.7 million, or 1.6% of net sales, for the nine months ended November 1, 2008.
Interest Expense, Net. Net interest expense was $0.6 million for the nine months ended October 31, 2009, as compared to $0.4 million for the nine months ended November 1, 2008.
(Benefit) Provision for Income Taxes. The effective tax rate for the nine months ended October 31, 2009 reflects a benefit of 42.6%, as compared to a provision of 40.2% for the nine months ended November 1, 2008. The change in the effective tax rate is primarily due to tax benefits recognized during the first and third quarters of fiscal year 2009 in connection with the reduction of tax positions for prior years.
(Loss) Income from Continuing Operations. For the reasons discussed above, loss from continuing operations for the nine months ended October 31, 2009 was $16.0 million, or 2.3% of net sales, as compared to income from continuing operations of $7.3 million, or 0.9% of net sales, for the nine months ended November 1, 2008.
Income from Discontinued Operations, Net of Taxes. Income from discontinued operations, net of taxes, represents the Company's discontinued JasmineSola business.
19
Non-GAAP Financial Measure
The Company has provided a non-GAAP financial measure to adjust (loss) income from continuing operations for the three and nine months ended October 31, 2009 and November 1, 2008. This information reflects, on a non-GAAP adjusted basis, the Company's (loss) income from continuing operations before interest expense, net; (benefit) provision for income taxes; and depreciation and amortization ("EBITDA"). The calculation for EBITDA is provided to enhance the user's understanding of the Company's operating results. EBITDA is provided because management believes it is an important measure of financial performance commonly used to determine the value of companies and to define standards for borrowing from institutional lenders. The non-GAAP financial information should be considered in addition to, not as an alternative to, (loss) income from continuing operations, as an indicator of the Company's operating performance, and cash flows from operating activities of continuing operations, as a measure of the Company's liquidity, as determined in accordance with accounting principles generally accepted in the United States. The Company may calculate EBITDA differently than other companies.
Reconciliation of (Loss) Income from Continuing Operations to EBITDA
|
Three months ended October 31, 2009 |
Three months ended November 1, 2008 |
Nine months ended October 31, 2009 |
Nine months ended November 1, 2008 |
||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Amounts in thousands |
As a % of net sales |
Amounts in thousands |
As a % of net sales |
Amounts in thousands |
As a % of net sales |
Amounts in thousands |
As a % of net sales |
||||||||||||||||||
(Loss) income from continuing operations |
$ | (6,302 | ) | (2.8 | )% | $ | (7,992 | ) | (3.2 | )% | $ | (16,019 | ) | (2.3 | )% | $ | 7,341 | 0.9 | % | |||||||
Add back: |
||||||||||||||||||||||||||
Interest expense, net |
179 | 0.1 | % | 232 | 0.1 | % | 568 | 0.1 | % | 412 | 0.1 | % | ||||||||||||||
(Benefit) provision for income taxes |
(4,803 | ) | (2.1 | )% | (5,372 | ) | (2.2 | )% | (11,897 | ) | (1.7 | )% | 4,935 | 0.6 | % | |||||||||||
Depreciation and amortization |
10,497 | 4.6 | % | 10,887 | 4.4 | % | 31,383 | 4.5 | % | 32,130 | 3.9 | % | ||||||||||||||
EBITDA |
$ | (429 | ) | (0.2 | )% | $ | (2,245 | ) | (0.9 | )% | $ | 4,035 | 0.6 | % | $ | 44,818 | 5.5 | % | ||||||||
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 facilities, if needed. The Company is in compliance with all debt covenants as of October 31, 2009.
The following tables contain information regarding the Company's liquidity and capital resources:
|
October 31, 2009 |
January 31, 2009 |
November 1, 2008 |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
|
(Amounts in thousands) |
|||||||||
Cash and cash equivalents (including cash at discontinued operations of $0, $1 and $0, respectively) |
$ | 39,297 | $ | 54,281 | $ | 41,152 | ||||
Working capital |
$ | 61,248 | $ | 70,599 | $ | 87,173 |
20
|
Nine months ended October 31, 2009 |
Nine months ended November 1, 2008 |
|||||
---|---|---|---|---|---|---|---|
|
(Amounts in thousands) |
||||||
Net cash provided by operating activities of continuing operations |
$ | 1,589 | $ | 15,362 | |||
Net cash used in investing activities of continuing operations |
$ | (8,903 | ) | $ | (40,029 | ) | |
Net cash used in financing activities of continuing operations |
$ | (7,664 | ) | $ | (2,016 | ) | |
Net cash used in discontinued operations |
$ | (6 | ) | $ | (6,122 | ) | |
Net decrease in cash and cash equivalents |
$ | (14,984 | ) | $ | (32,805 | ) | |
Operating Activities of Continuing Operations
Net cash provided by operating activities of continuing operations was $1.6 million for the nine months ended October 31, 2009, as compared to net cash provided by operating activities of continuing operations of $15.4 million for the nine months ended November 1, 2008. The decrease in net cash provided by operating activities is primarily related to the loss from continuing operations and changes in deferred income taxes, accounts receivable, income taxes receivable, accounts payable, accrued expenses, and deferred rent, partially offset by changes in inventory, prepaid expenses and other assets and liabilities.
Investing Activities of Continuing Operations
Net cash used in investing activities of continuing operations was $8.9 million for the nine months ended October 31, 2009, as compared to $40.0 million of net cash used in investing activities of continuing operations for the nine months ended November 1, 2008. The reduction in net cash used in investing activities is in-line with the Company's plans to reduce capital expenditures and to conserve cash. The Company opened 11 new stores and completed three remodels during the nine months ended October 31, 2009, as compared to opening 25 new stores and completing 13 remodels during the nine months ended November 1, 2008. Also contributing to the reduction in net cash used in investing activities was a decrease in capital expenditures related to information technology, primarily attributable to costs incurred last year for the new point-of-sale terminal system the Company implemented across the chain during fiscal year 2008 and the upgrade of its merchandise planning system that is expected to be completed in phases over the next six months.
During fiscal year 2009, the Company plans to have opened approximately 11 stores, including three temporary locations, close approximately 20 stores and remodel approximately three stores, ending the fiscal year with approximately 580 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 of Continuing Operations
Net cash used in financing activities of continuing operations was $7.7 million for the nine months ended October 31, 2009, as compared to $2.0 million of net cash used in financing activities for the nine months ended November 1, 2008. Net cash used in financing activities for the nine months ended October 31, 2009 consists of quarterly payments against the Company's outstanding term loan totaling $4.5 million plus $3.4 million used for the repurchase of 1,000,000 shares of the Company's common stock under its authorized share repurchase program, partially offset by $0.3 million of proceeds from the exercise of stock options and the related tax benefit to the Company. Net cash used in financing activities for the nine months ended November 1, 2008 consists of quarterly payments against the
21
Company's outstanding term loan totaling $4.5 million, partially offset by $2.5 million of proceeds from the exercise of stock options and the related tax benefit to the Company.
Discontinued Operations Cash Flows
There were no material payments or receipts during the nine months ended October 31, 2009 that related to the discontinued operations of JasmineSola. Net cash used in discontinued operations of $6.1 million during the nine months ended November 1, 2008 consisted primarily of lease termination payments and the payment of other exit related liabilities.
Long-Term Debt and Credit Facilities
The Company's credit facilities currently consist of a term loan, of which $15.0 million was outstanding at October 31, 2009, and a $90.0 million revolving credit facility (which includes a sub-facility available for issuance of letters of credit of up to $75.0 million), both having a maturity date of March 17, 2012.
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 October 31, 2009, the Company had availability under its revolving credit facility of $73.6 million, net of letters of credit outstanding of $7.0 million, as compared to availability of $74.6 million, net of letters of credit outstanding of $7.3 million, as of November 1, 2008.
The revolving loans under the credit facilities bear interest, at the Company's option, either at a floating rate equal to the Eurodollar rate plus a margin of between 1.00% and 1.25% per year, depending upon the Company's financial performance, or the Prime rate. The Company pays the lenders under the revolving credit facility a monthly fee on outstanding commercial letters of credit at a rate of 0.625% per year and on standby letters of credit at a rate of between 1.00% and 1.25% per year, depending upon the Company's financial performance, plus a monthly fee on a proportion of the unused commitments under that facility at a rate of 0.20% per year. The term loan bears interest at a floating rate equal to the Eurodollar rate plus 2.50% per year. If any default were to exist under the revolving credit facility and for so long as such default were to continue, at the option of the agent or lenders, the monthly fee on outstanding standby letters of credit may increase to 3.25% per year, interest on the revolving loans may increase to 3.25% per year above the Eurodollar rate for Eurodollar rate loans and 2.00% per year above the Prime rate for all Prime rate loans, and interest on the term loan may increase to the Eurodollar rate plus 4.50% per year.
The Company's credit facilities contain certain covenants, including restrictions on the Company's ability to pay dividends on its common stock, 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. The terms of the Company's credit facilities also subject it to a minimum fixed charge coverage ratio of 1.00 to 1.00, if the Company's borrowing availability under its revolving credit facility plus qualified cash falls below $30.0 million ($20.0 million during March and November). If the Company fully repays its existing term loan, the Company will only be subject to the minimum fixed charge coverage ratio in the event that borrowing availability under its revolving credit facility falls below $12.5 million. In addition, the Company is required at all times to maintain minimum borrowing availability under its credit facility of $10.0 million. The Company is currently in compliance with the financial covenants referred to above.
The lenders have been granted a pledge of the common stock of Lerner Holding 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
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the credit facilities. In addition, New York & Company, Inc. and certain of its subsidiaries have fully and unconditionally guaranteed the credit facilities, and such guarantees are joint and several.
Critical Accounting Policies
Management has determined that our most critical accounting policies are those related to inventory valuation, impairment of long-lived assets, goodwill and other intangible assets, and income taxes. We continue to monitor our accounting policies to ensure proper application of current rules and regulations. There have been no significant changes to these policies as discussed in our Annual Report on Form 10-K for the fiscal year ended January 31, 2009.
Adoption of New Accounting Standards
In September 2006, the FASB issued ASC Topic 820, "Fair Value Measurements and Disclosures." ASC 820 establishes a common definition for fair value to be applied to U.S. GAAP guidance requiring the use of fair value, establishes a framework for measuring fair value, and expands the disclosure about such fair value measurements. The application of ASC 820 as it relates to financial assets and liabilities was effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. On February 12, 2008, the FASB agreed to delay the effective date of ASC 820 for all nonfinancial assets and liabilities, except those that are recognized or disclosed at fair value in the financial statements on at least an annual basis, to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The Company adopted ASC 820 as it relates to financial assets and liabilities and any other assets and liabilities that are recognized or disclosed at fair value on a recurring basis in fiscal year 2008, and on February 1, 2009, the Company adopted the remaining provisions of ASC 820 for all nonfinancial assets and liabilities disclosed at fair value on a non-recurring basis. The provisions of ASC 820 were applied prospectively as of the beginning of the fiscal year. The Company's adoption of ASC 820 did not have a material impact on its financial position or results of operations.
In April 2009, the FASB issued ASC Topic 825, "Financial Instruments," ("ASC 825") to require disclosures about fair value of financial instruments for interim periods of publicly-traded companies as well as in annual financial statements. ASC 825 also require those disclosures in summarized financial information at interim reporting periods. ASC 825 was effective for interim reporting periods ending after June 15, 2009. The Company adopted ASC 825 effective August 1, 2009. The Company's adoption of ASC 825 did not have a material impact on its financial position or results of operations.
In May 2009, the FASB issued ASC Topic 855, "Subsequent Events" ("ASC 855") which establishes general standards of accounting for the disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued. ASC 855 requires the disclosure of the date through which an entity has evaluated subsequent events and whether that date represents the date the financial statements were issued or were available to be issued. ASC 855 was effective for interim or annual financial periods ending after June 15, 2009 and is applied prospectively. The Company adopted ASC 855 effective August 1, 2009. The Company's adoption of ASC 855 did not have a material impact on its financial position or results of operations.
In June 2009, the FASB issued ASC Topic 105, "Generally Accepted Accounting Principles" ("ASC 105"). ASC 105 establishes the FASB Accounting Standards Codification ("Codification") as the single official source of authoritative GAAP (other than guidance issued by the SEC) recognized by the FASB to be applied by nongovernmental entities. The GAAP hierarchy will be modified to include only two levels of GAAP: authoritative and non-authoritative. All non-grandfathered non-SEC accounting literature not included in the Codification will become non-authoritative. Changes to the Codification are now communicated through an Accounting Standard Update ("ASU") which is issued for all amendments and updates to authoritative U.S. GAAP. ASC 105 was effective for interim or annual financial periods ending after September 15, 2009. The Company adopted ASC 105 effective October 31, 2009 with no impact on the Company's financial position or results of operations. The Company has cited the relevant parts of the Codification in the current quarter report and will apply the new presentation prospectively.
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In August 2009, the FASB issued ASU No. 2009-05, "Fair Value Measurements and DisclosuresMeasuring Liabilities at Fair Value" ("ASU 2009-05"), which amends ASC Topic 820, "Fair Value Measurements and Disclosures." ASU 2009-05 provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value of such liability using one or more of the techniques prescribed by the update. ASU 2009-05 is effective for the first interim or annual reporting period beginning after August 2009. The Company does not anticipate that the adoption of ASU 2009-05 will have a material impact on its financial position or results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rates. The Company's market risks relate primarily to changes in interest rates. The Company's credit facilities carry floating interest rates that are tied to the Eurodollar rate and the Prime rate and therefore, the consolidated statements of operations and the consolidated statements of cash flows will be exposed to changes in interest rates. A 1.0% interest rate increase would increase interest expenses by approximately $0.2 million annually. The Company historically has not engaged in interest rate hedging activities.
Currency Exchange Rates. The Company historically has not been exposed to currency exchange rate risks with respect to inventory purchases as such expenditures have been, and continue to be, denominated in U.S. Dollars. The Company purchases some of its inventory from suppliers in China, for which the Company pays U.S. Dollars. Since July 2005, China has been slowly increasing the value of the Chinese Yuan, which is linked to a basket of world currencies. If the exchange rate of the Chinese Yuan to the U.S. Dollar continues to increase, the Company may experience fluctuations in the cost of inventory purchased from China and the Company would adjust its supply chain accordingly.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. The Company carried out an evaluation, as of October 31, 2009, under the supervision and with the participation of the Company's management, including the Company's Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended. Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that the Company's disclosure controls and procedures are effective in ensuring that all information required to be filed in this Quarterly Report on Form 10-Q was (i) recorded, processed, summarized and reported within the time period specified in the Securities and Exchange Commission's rules and forms (ii) and that the disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to the Company's management, including its Principal Executive and Principal Financial Officers, as appropriate to allow timely decisions regarding required disclosure.
(b) Changes in internal control over financial reporting. There has been no change in the Company's internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rule 13a-15 or 15d-15 that occurred during the Company's last fiscal quarter (the Company's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
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There have been no material changes in the Company's legal proceedings from what was reported in its Annual Report on Form 10-K filed with the SEC on April 7, 2009.
There have been no material changes in the Company's risk factors from what was reported in its Annual Report on Form 10-K filed with the SEC on April 7, 2009.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
We made no purchases of treasury stock during the three months ended October 31, 2009. The remaining availability pursuant to the Company's authorized share repurchase program was as follows:
Period
|
Total Number of Shares Purchased |
Average Price Paid Per Share |
Total Number of Shares Purchased as Part of Publicly Announced Program(1) |
Maximum Number of Shares that May Yet Be Purchased Under the Program(1) |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
August 2, 2009 to August 29, 2009 |
| | | 2,750,000 | |||||||||
August 30, 2009 to October 3, 2009 |
| | | 2,750,000 | |||||||||
October 4, 2009 to October 31, 2009 |
| | | 2,750,000 | |||||||||
Total |
| | | 2,750,000 | |||||||||
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
None.
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The following exhibits are filed with this report and made a part hereof.
31.1 | Certification by the Chairman and Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated December 8, 2009. | ||
31.2 |
Certification by the Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated December 8, 2009. |
||
32.1 |
Certification of the Chairman and Chief Executive Officer and the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated December 8, 2009. |
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Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
NEW YORK & COMPANY, INC. | ||||
/s/ SHEAMUS TOAL |
||||
By: | Sheamus Toal | |||
Its: | Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
|||
Date: | December 8, 2009 |
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