New York & Co. (NWY) Tops Q3 EPS by 2c, Offers Outlook

New York & Co. (NYSE: NWY) reported Q3 EPS of ($0.11), $0.02 better than the analyst estimate of ($0.13). Revenue for the quarter came in at $210.3 million versus the consensus estimate of $210 million. Comps fell 3.4%.

Outlook:

During the third quarter of fiscal year 2014, the Company engaged a leading global business advisory firm to assist the Company in analyzing its business processes and organizational structure in an effort to identify cost savings and business improvement strategies. The Company recently initiated an organizational realignment in connection with the business analysis performed. As a result of the organizational changes made, the Company expects to save $9 million to $10 million in annual payroll and related costs with $1.5 million in savings expected to be recognized during the fourth quarter of fiscal year 2014. In connection with this reorganization, the Company expects to record a charge of $2.2 million for severance and related benefits during the fourth quarter of fiscal year 2014. The business process analysis is ongoing, and the Company plans to provide an update of the progress, overall project timeline, and potential savings when it releases fourth quarter and full year operating results.

Regarding expectations for the fourth quarter of fiscal year 2014, the Company is providing the following guidance:

• Net sales and comparable store sales are expected to be flat to down in the low single-digit percentage versus last year.
• Gross margin is expected to be down approximately 200 basis points from the prior year’s rate reflecting improved product costs offset by increased promotional activity, increased freight and shipping costs associated with the implementation of the Company’s contingency plans resulting from the recent port delays and decreased leverage of buying and occupancy expenses.
• Selling, general and administrative expenses are expected to be up approximately $7 million from last year reflecting non-recurring charges of approximately $5.9 million, which are comprised of $2.5 million for duplicative rent, $1.2 million in moving expenses associated with the relocation of the Company’s corporate headquarters, and $2.2 million in severance related expenses.
• On a non-GAAP basis, excluding the non-recurring charges of $5.9 million, adjusted operating income is expected to be approximately breakeven, as compared to the prior year’s operating income of $7.2 million.
• On a non-GAAP basis, excluding the non-recurring charges of $5.9 million, adjusted net income is also expected to be approximately breakeven, as compared to the prior year’s net income of $6.9 million.

Additional Outlook:

• The Company expects on-hand inventory at the end of the fourth quarter of fiscal year 2014 to be up by a low-single-digit percentage versus the end of the fourth quarter of last year. In-transit inventories are expected to be up significantly due to the longer lead times associated with the Company’s contingency plans surrounding the ongoing port delays, and due to the acceleration of certain early Spring deliveries. Total inventory is expected to increase in the double-digit range, primarily resulting from the higher levels of in-transit inventory.
• Capital expenditures for the fourth quarter of fiscal year 2014 are projected to be between $14 million and $16 million, as compared to $6.2 million of capital expenditures in the fourth quarter of last year. The increase reflects:
• Continued investments in information technology and eCommerce; and
• Capital expenditures of approximately $7 million related to the Company’s relocation and build-out of its new corporate headquarters.
• Depreciation expense for the fourth quarter of fiscal year 2014 is estimated at $7 million.
• The Company expects to close nine existing New York & Company locations during the fourth quarter of fiscal year 2014.
• The Company plans to end fiscal year 2014 having opened 12 new stores, including 11 Outlet stores, remodeled 11 existing stores and closed approximately 16 stores, ending the fiscal year with roughly 503 stores, including 62 Outlet stores, and approximately 2.6 million selling square feet.
• The Company does not anticipate the need to borrow under its credit facility during the fourth quarter of fiscal year 2014.

For earnings history and earnings-related data on New York & Co. (NWY) click here.

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