New York & Co. (NWY) Reports Q1 EPS of $0.06 on Revenues of $218.8M; 'Increases Spring Operating Income Guidance'

New York & Co. (NYSE: NWY) reported Q1 EPS of $0.06. Revenue for the quarter came in at $218.83 million.

Gregory Scott, New York & Company’s CEO stated: “We were pleased to have a strong start to the year reporting first quarter operating income that significantly exceeded guidance driven by strength across all key financial metrics, including positive comparable store sales in both our store and eCommerce channels, expansion in gross margin and disciplined expense management. GAAP operating income rose $7.3 million from the first quarter last year, continuing the favorable momentum we have seen in our business for the past 5 quarters. We attribute our consistent performance to the successful execution of our strategy, focused on expanding our exclusive celebrity brand offerings that differentiates New York & Company from peers and resonates well with our demographic, increasing digital marketing, growing our loyalty base, leveraging our omni-channel capabilities, gaining efficiencies from Project Excellence, and adding new growth opportunities in support of our long-term growth. Our partnerships with Eva Mendes and Gabrielle Union continue to be a cornerstone of our future strategy, and their strong support of the partnership was integral to our strong results in the quarter. Our positive outlook is reflected in the decision to increase Spring season operating income guidance.

As we look ahead, we remain excited about our business prospects. Our strong balance sheet and positive cash flow positions us well to continue to execute our strategy and invest in growth initiatives. We expect to add a third celebrity brand this year to support our Soho jeans sub-brand and also to continue to integrate and expand our recently acquired brand, Fashion to Figure. We reintroduced Fashion to Figure in February, opening 8 locations and launching the brand on our eCommerce platform. We continue to look forward to the success of these initiatives and we are optimistic that they will lead to sustainable growth in sales and profits while also increasing long-term value for our shareholders.”

First Quarter Fiscal Year 2018 Results (13-weeks ended May 5, 2018 compared to the 13-weeks ended April 29, 2017):

• Net sales were $218.8 million, as compared to $209.9 million in the prior year. The increase in net sales reflects the combined effect of the shift of the calendar due to the 53rd week in fiscal year 2017, increased sales from Fashion to Figure and growth in eCommerce sales, partially offset by a reduced store count.
• Comparable store sales increased 2.7%, as compared to the same period last year, driven by increases in both brick-and-mortar store sales and sales from the Company’s eCommerce business.
• Gross profit as a percentage of net sales increased 130 basis points to 32.0% versus the fiscal year 2017 first quarter gross profit percentage of 30.7%, reflecting the highest gross margin rate achieved in the first quarter since 2005. The increase during the quarter reflects a 260 basis point improvement in the leverage of buying and occupancy costs due to a $3.4 million reduction in expenses, partially offset by a 130 basis point decrease in merchandise margin, largely driven by increased shipping expense, severance expense and a slight increase in promotional activity. Cost of goods sold, buying and occupancy costs included $0.3 million and $0.5 million of non-operating charges during the first quarter of fiscal year 2018 and fiscal year 2017, respectively, related to certain severance expense.
• On a GAAP basis, selling, general and administrative expenses were well below our guidance at $66.5 million, or 30.4% of net sales, as compared to $68.3 million, or 32.5% of net sales in the prior year period. The current year period includes $0.5 million of non-operating charges primarily related to employee termination costs from our recent organizational changes. On a non-GAAP basis, selling, general and administrative expenses were $66.0 million, or 30.1% of net sales, as compared to non-GAAP selling, general and administrative expenses of $67.2 million, or 32.0% of net sales in the prior year.
• GAAP operating income improved significantly to income of $3.5 million, which included non-operating charges of $0.8 million. Excluding the $0.8 million of non-operating charges, adjusted non-GAAP operating income was well above the Company’s prior guidance at $4.3 million, and the prior year’s GAAP operating loss of $3.9 million and the non-GAAP operating loss of $2.3 million, which excluded $1.6 million of non-operating charges.
• GAAP net income for the first quarter of fiscal year 2018 improved by $7.3 million to $3.1 million, or earnings of $0.05 per diluted share, as compared to the prior year’s GAAP net loss of $4.2 million, or a loss of $0.07 per diluted share. On a non-GAAP basis, the Company’s first quarter 2018 adjusted net income was $3.9 million, or earnings of $0.06 per diluted share. This compares to prior year’s first quarter, non-GAAP adjusted net loss of $2.7 million, or a loss of $0.04 per diluted share.

Outlook:

Regarding expectations for fiscal year 2018, the Company continues to focus on improving its operating results to drive increases in both annual operating income and EBITDA. As previously disclosed in March, the individual quarters within the Spring season are expected to be impacted by the combined effects of the calendar shift from the 53rd week in fiscal year 2017 and the new revenue recognition accounting standard, and as such, the Company will provide commentary on the overall Spring season, which combines the first and second quarters of fiscal year 2018.

For the Spring season, the Company has increased its expectations and now expects non-GAAP operating income to be in the range of $5 million to $6 million, excluding the impact of non-operating charges of $1.0 million primarily related to severance, resulting from the Company’s recently completed streamlining of its corporate office support functions, as compared to the prior year non-GAAP operating income of $1.2 million. Adjusted EBITDA for the Spring season, excluding the aforementioned charge for severance, is expected to be in the range of $17 million to $18 million, as compared to adjusted EBITDA of $12.3 million for the prior Spring season after excluding non-operating charges and benefits.

• Net sales for the full Spring season are expected to be up slightly, reflecting growth in eCommerce and the addition of Fashion to Figure, partially offset by a reduced store count.
• Comparable store sales, which are shifted to compare like calendar weeks, are expected to increase in the low single-digit percentage range for the full Spring Season.
• Gross margin for the full Spring Season is expected to increase by approximately 50 basis points, as compared to last year’s historic high, reflecting reductions in home office payroll costs driven by the ongoing benefits of Project Excellence and reductions in occupancy costs due to the Company’s real estate negotiations, partially offset by increased shipping costs associated with the growing omni-channel business, and increases in variable-based compensation accruals.
• Selling, general and administrative expenses for the Spring season are expected to decrease by approximately 50 basis points after excluding the impact of non-operating charges and benefits in both periods. This reflects the Company’s continued efforts to increase efficiency and reduce home office payroll costs through a recently completed rationalization of the Company’s corporate support functions in connection with Project Excellence, partially offset by an increase in selling expenses driven by increases in eCommerce variable costs and performance-based compensation accruals, which are anticipated this year based upon the Company’s improved operating results.
• Non-GAAP operating income for the Spring season is now expected to be in the range of $5 million to $6 million, as compared to non-GAAP operating income of $1.2 million in the prior year period.

Additional Outlook:

• Total inventory at the end of the second quarter is expected to be down by a low to mid-single-digit percentage as compared to the prior year second quarter, reflecting lower on-hand inventory, partially offset by higher in-transit inventory.
• Capital expenditures for the second quarter of fiscal year 2018 are projected to be approximately $3 million to $5 million, as compared to $2.6 million of capital expenditures in the second quarter of last year, reflecting continued investments in the Company’s information technology and omni-channel infrastructure, and real estate remodel/refresh activity. For the full year, capital expenditures are expected to be in the range of $10 million to $12 million.
• Depreciation expense for the second quarter of fiscal year 2018 is estimated to be approximately $5 million.
• During the second quarter of fiscal year 2018, the Company expects to open 1 Fashion to Figure store, open 1 new Outlet store, convert 1 existing New York & Company store to an Outlet store, remodel/refresh 4 existing stores, and close 5 New York & Company stores and 1 Outlet store.

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

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