New York and Company, Inc. Q4 2008 Earnings Call Transcript

New York and Company, Inc. (NWY)

Q4 2008 Earnings Call Transcript

March 19, 2009 9:00 am ET

Executives

Allison Malkin – Integrated Corporate Relations

Richard Crystal – Chairman and CEO

Sheamus Toal – EVP and CFO

Leslie Goldmann – EVP, Merchandising

Analysts

Neely Tamminga – Piper Jaffray

Sam Panella – Raymond James

Robin Murchison – Sun Trust

Stacy Pak – SP Research

Jeffrey Helper [ph] – Retail Apparel Partners [ph]

Stuart Quan [ph] – Sanders [ph]

Presentation

Operator

Good morning. My name is Brandie, and I will be your conference operator today. At this time, I would like to welcome everyone to the New York and Company fourth quarter and fiscal year 2008 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator instructions) Thank you. I would now like to turn the call over to Allison Malkin of ICR. Please go ahead.

Allison Malkin

Thank you. Good morning. Before we begin, I would like to remind you that some of the comments made on today’s call, either as part of our prepared remarks or in response to your questions, may contain forward-looking statements that are made pursuant to the Safe Harbor provision in the Private Securities and Litigation Reform Act of 1995. Actual results may differ from those projected in such forward-looking statements.

Such forward-looking statements are subject to risk and uncertainties as described in the company’s documents filed with the SEC, including the company’s fiscal year 2007 Form 10-K. Unless otherwise noted, the results of operations discussed below are for the company’s continuing operations only of the New York and Company brand.

With that, I’d like to turn the call over to New York and Company’s Chairman and CEO, Richard Crystal.

Richard Crystal

Thank you, Allison. Good morning. Thank you for joining us to discuss the company’s fourth quarter and fiscal year 2008 results. On the call with me today is our Executive Vice President and Chief Financial Officer, Sheamus Toal; and, our Chief Merchant, Leslie Goldmann. Following my opening remarks, Sheamus will review our financial highlights, and then I will provide closing comments and turn the call over to the operator to conduct the question-and-answer portion of this call.

The fourth quarter represented a challenging period for our company as the unprecedented economic conditions and financial crisis significantly reduced consumer spending during the period. During the quarter, our goals were focused on controlling expenses and inventory while continuing to deliver great fashion, exciting marketing, and good value to our customers. While we accomplished our expense management and inventory goals, the increased level of promotions needed to clear seasonal inventory was detrimental to our profitability during the period.

We were, however, pleased to end the year with a strong balance sheet with $54 million in cash on hand. Inventory at cost was down 1% on an average store basis and down by approximately 6.6% on an in-store basis. Importantly, our apparel inventory has declined by 9.8% on a unit basis and by 14.3% on a unit basis in-store.

During the quarter, we also initiated an extensive review of our organization in an effort to streamline our business, reducing costs, and increasing efficiency. We evaluated all aspects of our company, our stores, distribution, sourcing, and corporate expenses, which led to our restructuring cost reduction program that we announced in January of this year. Through the implementation of this program, we expect to generate pretax savings of approximately $175 million over the next five years. $30 million is expected in fiscal 2009.

Key elements of the program include a strategic staff downsizing, resulting in a permanent reduction of 12% of our field management, with an approximate 10% reduction in our corporate office staff; the optimization of our store portfolio, including the closure of 40 to 50 underperforming stores over a five-year period; a broad based cost reduction effort across all aspects of our business, from distribution and freight to sourcing, real-estate, and home office operations; and, significant reductions in capital expenditure plans as compared to fiscal year 2008, with fiscal year 2009 capital expenditures targeted at $15 million, representing a decline of $30 million from fiscal year 2008.

We believe this cost reduction program, along with the reduction in our capital expenditures, will enable us to achieve positive cash flow in fiscal year 2009, despite our expectation for the economy to remain challenging.

It is important to mention that we did achieve noteworthy progress during fiscal 2008 by executing on our key initiatives and exercising prudent expense and inventory management disciplines. Our achievements during fiscal 2008 include our e-Commerce business, which recorded strong growth, with sales almost double the prior year’s level; improved sales performance in the accessory category, which achieved positive comparable store sales for the fourth quarter and the full year; continued strength in our wear-to-work categories; selling, general, and administrative expenses for the year declined by 2.1% on an average store basis, reflecting tight expense controls; and additionally, we ended the year, as I mentioned earlier, with $54 million of cash with reduced long term debt and no outstanding borrowings under our revolving credit facility.

As we begin fiscal year 2009, we expect the challenging economic environment to continue. Our priorities are to further enhance our brand while implementing initiatives to drive profitability and cash flow. Specifically, we will execute our restructuring and cost reduction program initiatives; improve our merchandise margins as we continue to control inventory, lower our sourcing costs, maintain strong fashion, and limit promotional activity; continue to build the brand; and, increase our customer base by offering compelling fashion assortments. Specifically, we believe there is a significant opportunity to improve our casual business, which has lagged the performance of our accessory and wear-to-work categories.

As you may know, the casual business has been a drag on the business for the past few seasons. However, we have taken significant steps to address this in the coming year. We have already identified a new leader for this business and we have already begun to see some results from her efforts.

We have segmented the street wear, lounge wear, and workout components of the active wear business, which leverages our customers’ broad range of active lifestyles. And we have begun to see positive results in these categories. Casual knit tops have also shown progress. And we have revamped our jean and casual pant business for fall and expect that, with all of these changes, the casual business will begin to perform more in line with the chain.

We also plan on narrowing the range of styles we offer across all merchandise categories and will buy deeper into key items. Our goal is to ensure we have the proper sizes and colors in the key fashion items our customers favor. We will also strategically broaden our price points to appeal to the trade now customers shopping in our stores. We are not abandoning our opening price points, but rather, expanding our reach to the better customer that is currently shopping with us.

We will further develop and enhance our e-Commerce business, which continues to post strong increases. We believe e-Commerce is a means to reach our current customer as well as attract new customers to our brand. In 2009 we expect to see continued sales growth by strengthening our infrastructure and focusing on increasing traffic to the Web site as we improve our multi-channel experience, improving the customer experience through our new site re-launch planned for the spring season. Enhancements from this re-launch will include improved navigation, enhanced search capabilities, and a more brand right look and feel to the site. We’ll be strengthening our online marketing programs and broadening our online assortment with new product exclusives and current product extensions.

Finally, we will maintain a conservative capital structure and have targeted reductions in capital expenditures, expenses, and inventory. Regarding our store expansion, we have scaled back expansion plans to include only three new store openings and three remodels.

Given limited visibility due to the volatile economic environment, we will provide guidance for the spring season along with guidance on certain key financial metrics. However, we have chosen not to provide guidance for annual sales and earnings per share for fiscal 2009. We believe that consumer spending will remain challenging. And as a result, have conservatively planned for fiscal year 2009.

We expect a comparable store sales trend for the first half of the year to be similar to the trend experienced in the fourth quarter. And we expect losses in the first quarter to be offset by income in the second quarter of 2009.

Now, I would like to turn the call over to Sheamus who will review our financial performance.

Sheamus Toal

Thank you, Richard. Good morning, everyone. First, I would like to mention that the results being discussed today are for our continuing operations in the New York and Company brand.

During the fourth quarter of fiscal year 2008, we recorded a $24.5 million restructuring charge comprised of a $22.9 million non-cash asset impairment charge and a $1.7 million charge, primarily related to severance and other costs necessary to implement the cost – the restructuring and cost reduction program. In addition, the company incurred charges totaling $1.5 million related to the settlement of two separate class action lawsuits in the State of California. Collectively, these charges had a negative impact on our diluted earnings per share in the fourth quarter of fiscal year 2008 of $0.26 per diluted share, and have been excluded from certain non-GAAP adjusted earnings that we will discuss shortly.

Net sales for the fourth quarter of fiscal year 2008 were $325.1 million as compared to $359.4 million for the fourth quarter of last year. The dramatic deterioration in the financial markets and the adverse effect on the US and global economy throughout the second half of 2008 resulted in a significant reduction in consumer confidence and the level of consumer spending on merchandise the company offers.

As a result, comparable store sales decreased 10.9% for the fourth quarter, which resulted in a loss of leverage on buying and occupancy costs and a decline in profit margins. In the comparable store sales dates, average dollar sales per transaction decreased by 5.8%, and the number of transactions per average store decreased by 5.4% as compared to the same period last year.

Gross profit for the fourth quarter of fiscal year 2008 was $61.1 million or 18.8% of net sales as compared to $103 million or 28.6% of net sales in the prior year. The 980-basis point decrease in gross profit as a percentage of net sales is, in large part, due to a 690-basis point decrease in merchandise margin, primarily attributable to the decrease in comparable store sales and an increase in promotional and inventory clearance activity.

In addition, buying and occupancy costs as a percentage of net sales increased by 290 basis points, primarily due to the impact of negative comparable store sales. Excluding the $24.5 million charge relating to the restructuring and cost reduction program and the $1.5 million charge to settle two lawsuits, selling, general, and administrative expenses decreased to $82 million or 25.2% of net sales during the fourth quarter of fiscal year 2008 as compared to $84 million or 23.3% of net sales during the last year’s fourth quarter. The increase in selling, general, and administrative expenses as a percentage of net sales is primarily a result of decreases in comparable store sales, partially offset by the company’s ongoing cost savings initiatives. On an average store basis, selling, general, and administrative expenses declined by 4.2%, reflecting improved cost controls.

Net income from continuing operations for the fourth quarter of fiscal year 2008 totaled $27.6 million or $0.46 per diluted share. Adjusted net loss from continuing operations was $12.1 million or $0.20 per diluted share, which excludes the charges associated with the restructuring and cost reduction program and the legal settlements. This compares to prior year net income from continuing operations of $11.2 million or $0.18 per diluted share.

For the full fiscal year, net loss from continuing operations was $20. 3 million or $0.34 per diluted share. Adjusted net loss from continuing operations was $3.2 million or $0.05 per diluted share, which excludes the charges associated with the restructuring and cost reduction program, the legal settlements, and also excludes the charge of $2.5 million related to the management changes that occurred during the third quarter. This compares to net income from operations of $26.7 million or $0.44 per diluted share for last year.

Moving on to our year-end balance sheet, inventory at cost was $104.9 million, which on an average store basis is down by approximately 1%, and on an in-store basis is down by 6% – 6.6%. This is on top of a 23% decline in in-store inventory per average store as of last year’s fiscal year-end. On a unit basis, our apparel inventory was down 9.8%. And on an in-store basis, our apparel units were down 14.3% as compared to last year’s fiscal year-end.

As we ended the year, we felt comfortable with the aging and overall level of our inventory and believe that we were well positioned as we entered spring. Our balance sheet included $54.3 million in cash and working capital of $70.6 million at January 31st, 2009.

Capital spending for fiscal year 2008 was $44.6 million as compared to $75.5 million last year. The current year spending was primarily related to our store opening and remodeling programs and IT development, which included the successful implementation of a new POS system, chain wide.

We currently believe that the economic environment will remain extremely challenging and have conservatively planned for fiscal year 2009. Given the limited visibility stemming from the volatility of the economy, we have chosen to provide earnings per share guidance for the spring season along with certain key financial metrics. However, we will suspend earnings per share guidance for the full fiscal year.

We currently expect comparable store sales – the comparable store sales trend for the first and second quarters to be similar to the trend experienced in the fourth quarter of fiscal year 2009. Earnings from continuing operations for the first half of fiscal year 2009 are expected to be approximately break-even, with second quarter profits approximately offsetting losses incurred in the first quarter.

We plan to continue to control inventory tightly with goods available for sale per average store down in the high single digits on a percentage basis versus the prior year. We expect merchandise margins for the spring season to move closely in line with the prior year levels. Buying and occupancy costs are expected to be down in dollars. However, as a percentage of revenues, these costs are expected to de-leverage due to the comparable store sales declines.

As a result, while total gross margins are expected to improve versus the fourth quarter, they are expected to decline versus the prior year. In response to this extremely difficult environment, we have implemented a cost reduction program that is expected to provide significant savings in fiscal year 2009. Approximately two thirds of these savings are expected to be realized in SG&A expenses. And as a result, we currently expect SG&A expense to be below the levels from the prior year. However, these savings are partially offset by additional spending to support our growing e-Commerce business.

Despite the reduction in total dollars, on a percentage of sales basis, SG&A expenses are expected to de-lever due to the comparable store sales declines. During the current months – the coming months, we are committed to maintaining our focus on liquidity and are pleased to have a strong balance sheet with flexibility under our existing debt agreements.

Currently, we have no outstanding borrowings under our existing credit facility. The facility has no financial covenants, unless availability falls below certain thresholds. And the facility does not expire until 2012. We expect to end the spring season and full fiscal year 2009 with cash levels increasing as compared to our cash position of $54 million at year-end 2008.

For the full fiscal year, we have reduced capital expenditures and planned to open approximately three stores, close 10 to 15 stores, and remodel approximately three locations, ending the year with 577 to 582 stores and 3.3 million building square feet in operation. Depreciation expense for the year is estimated at $42 million.

And now I’d like to turn the call back to Richard for closing remarks.

Richard Crystal

Thank you, Sheamus. In summary, we believe we are implementing the right strategies as we navigate through this turbulent economic climate. We will remain focused on serving our customers with compelling assortments in value, and have adjusted our expense structure and inventory plans to coincide with this environment. And now, I would like to turn the call over to the operator to begin the question-and-answer portion of the call.

Question-and-Answer Session

Operator

(Operator instructions) We’ll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Neely Tamminga with Piper Jaffray.

Neely Tamminga – Piper Jaffray

Great. Good morning, and up front just best of luck here in ’09. Just want to ask some clarity questions, if I may, on the current guidance, I hear that you’re giving it for the first half and yet you’re talking about de-leveraging on SG&A for the full year based on sales. Just wondering a couple of things. One, what sort of distribution between Q1 and Q2 should you be looking for? Are you looking for a downed – a ten-ish [ph] across the first half? Or would we expect some improvement in Q2 – improvement meaning maybe even less negative?

And then secondly, Richard, your store checks are coming back quite positive, which reflects the most recent foresight you have out there. And it really looks like a big improvement in casual from our perspective. I was just wondering if you can actually size up your comments on casual versus what we might be seeing in the store and talk about any sort of conversion improvements? I might have a couple of follow ups. Thanks.

Richard Crystal

Okay. Long list. I’ll take the second part first, and then I’ll let Sheamus deal with the other part, Neely. We’re happy with the (inaudible) set. We think it’s an improved set from where we’ve been in the past, especially in casual. We’re encouraged by the initial reaction to it. We’ve seen a change in trend over the last few weeks against our plan. But as you know, there’s a big shift in Easter. So it’s a little early to predict that. I’ll let Sheamus talk about the –

Sheamus Toal

The SG&A? Hi, Neely. First, just a clarification. All of our comments relating to both SG&A as well as gross margins are not for the full year, but rather for the – for the spring season. So all the comments were for the spring season.

Neely Tamminga – Piper Jaffray

So that comment on SG&A dollars being down, but yet still de-leveraging because of e-Commerce spend, that’s all related to first half?

Sheamus Toal

That’s correct.

Neely Tamminga – Piper Jaffray

Okay. Cool. And then, I guess – but in terms of the cadence, could we see some relative improvement in Q2 relative to Q1?

Sheamus Toal

I think you could see –

Neely Tamminga – Piper Jaffray

Similar to the profit plan. I guess that’s what I’m trying to figure out.

Sheamus Toal

Yes. Similar to the profit plan as we’ve laid out in the guidance, we will see some improvement both in the com-store [ph] trend as well as in some of our ratios for SG&A expenses and gross margins as we move from the first quarter to the second quarter. And that’s partially due to the ramp up of some of our cost reduction efforts. As we’ve talked about, we do expect about $30 million in cost reduction efforts. Those are being put into place within the first quarter. They’ll be in full effect by the end of the first quarter. So we do expect a period of some ramp up in the first quarter. But we’ll have the full effect of those in the second quarter.

Neely Tamminga – Piper Jaffray

Okay. That’s great. And just one last –

Sheamus Toal

Also our cost of goods sold will improve as we move into the second quarter due to some of those cost reduction efforts as well as some pricing decreases that we have been able to see. So those will ramp up in the second quarter and throughout the rest of the year.

Neely Tamminga-Piper Jaffray

So on this topic, Sheamus, will we be expect (inaudible) guidance on the back half purchase, mathematically speaking, with the cost structure that you guys are really tightening and doing an excellent job on here in Q1, and then seeing that play out in Q2. I mean is it feasible that your leverage point, I guess, for lack of a better term, in Q3, Q4 ends up coming being that much more – you'll be able to leverage on an easier term, or still a difficult comp [ph]. You know what I'm saying? In terms of downsize maybe, could we even actually start to see some leverage on these expenses because of how you guys are just really tightening this up?

Sheamus Toal

Yes. I think, certainly, the cost reduction efforts, as they fully ramp up, will enable us to leverage a little bit easier in the second half of the year. So I think you're assessment is correct on that at low negative comps we can obtain some leverage there.

Neely Tamminga-Piper Jaffray

Great. How about a couple other people ask questions, I might come back. Thanks.

Operator

Your next question comes from the line of Sam Panella with Raymond James.

Sam Panella – Raymond James

Okay. Good morning, everyone. Just want to – regarding your inventory, it looks – the total inventory per average store being down 1%, but it looks like your sales being down 13%, can you just talk about that more in and give comfort with where your inventory is?

Sheamus Toal

Yes. As we said, our total inventory is down 1% on an average store basis. But you have to bear in mind that, as of last year, we did have rather significant inventory declines. As we entered the year, we were down 23%. So we're building upon that base.

When you look at it on an in-store basis, as of year-end, we're actually down about 6.6%. And that is due to some timing shifts in our inventory receipts, and the level of receipts that are in transit. We believe that's a favorable indication to us. Our inventory levels at year-end were low. It indicates also the freshness of the inventory. A higher percentage of the inventory is on its way here. So on an in-store basis, it is down more in line with the sales reductions that we experienced.

Sam Panella – Raymond James

Okay. And then just one question regarding your closing of underperforming stores. It looks like, closing 15 stores this year, that’s sort of your normal pattern. Should we expect an acceleration in this? Have you start closing more of the underperforming stores? Or do this 15 count as part of that group of stores?

Richard Crystal

Yes, you're correct. Over the past four or five years, we have averaged, probably, 12 to 15 stores a year. As we've disclosed, we do expect our store – the analysis that we did on our store portfolio that we'll close 10 to 15 this year. So it's not dramatically different than our expectations, and those are the only store, in our past performance rather. And those are the only stores that we do expect to close at this particular time. So there are no additional ones as of right now.

Sam Panella – Raymond James

Okay. Thank you and good luck.

Richard Crystal

Thank you.

Operator

Your next question comes from the line of Eric Beder with Brean Murray.

Eric Beder – Brean Murray

Good morning.

Richard Crystal

Good morning.

Eric Beder – Brean Murray

Could you talk a little bit about some of your – how is – I would like to get a little – an update on how denim's doing?

Leslie Goldmann

Denim, well we're not commenting on specific product categories right now for competitive reasons. But I can say that, overall, we are very pleased with our assortments.

Eric Beder – Brean Murray

Okay. When you look at your customer base, how are you still seeing what you believe to be this trade down customer? And can you talk a little bit, I know you talked about expanding price points. Can you talk a little more in-depth on how you're going to try and track more of that trade down customer?

Leslie Goldmann

Sure, sure. Well, we're taking actually a two-fold approach right now in our pricing strategies. As Richard mentioned earlier, we definitely believe we want to be out there very focally with our opening price point to ensure that we come across as a value proposition to our customers as well as to new customers. But we're also broadening our price range to include a higher price range, which is still below our competitors, and believe that we’ll be able to attract some trade down customers with that.

We also have introduced a line of our Red label collection, which is in about 50 of our stores right now, which is – specifically catered to that end. And in fact, in the next couple of weeks, we'll be introducing a new line, a Red label shirt collection, which is intended to capitalize on what is a really strong business for us in our base.

And we're offering a stepped up fashion and quality assortment, which we believe will attract people. I also want to mention our very strong marketing campaign that inherently is leveraging attracting new customers into our store.

Richard Crystal

And one more thing I'll add to Leslie's comments, Eric, is that as prices have come down from some of our suppliers, while we've chosen to take advantage of lots of that, some of it we've actually put that quality in, and gone after some bit of fabrications in certain categories of merchandise. So again, as an effort to broaden those price range, we're not raising our prices, we're actually offering more value by putting in a better product and trying to appeal to that customer.

Eric Beder – Brean Murray

Do you believe that as price declines you've seen with suppliers, is that kind going to accelerate as we go into the year in terms of the relative advantage of that?

Richard Crystal

Well, it just depends. Again, we don't want to competitively talk about what we do, but we think we've been able to exact some good price concessions. And we continue to believe that there's an opportunity to improve that, certainly, into the third and fourth quarters.

Eric Beder – Brean Murray

Okay. And final question, just kind of theoretically, you’ve talked about $175 million in cost savings over the next five years, and this year you take $30 million of that. That still leaves a much higher level of $30 million going forward. What is going to be the – what is going to drive the increase in cost savings beyond the initial $30 million a year for the next four years that you are talking about?

Sheamus Toal

Hi, Eric. This is Sheamus. That is correct. The first year is approximately $30 million. The years after that starts to ramp up to approximately $35 million. The single biggest factor in that is the store closures. So as we close stores over that five year period, the savings becomes a little more significant. In addition, there are certain expenses associated with our reductions, particularly some of the contracts, that start to ramp up within year one. So we expect the savings to be slightly higher. But by and large, the biggest component is the store closures as those happens over – as those happen over a few year period.

Eric Beder – Brean Murray

Great. Thank you.

Operator

Your next question comes from the line of Robin Murchison with Sun Trust.

Robin Murchison – Sun Trust

Hi, good morning. I was hoping if you could just elaborate a little bit more about – some of the other retailers right now are talking about widening the assortment, and you're talking about narrowing the assortment. And could you just elaborate on that?

Leslie Goldmann

Sure, sure. Well, our thoughts behind that is that, in this time, these customers are being much more selective about what they're purchasing. Our approach is really to just be more authoritative about what we believe in and what we think our customers are going to need and want for this season. And that's the strategy behind it. It seems to be working for us to date, and we plan to continue with that. I definitely think it's the right thing to do. That said, as we are targeting new customers into our business, we are expanding in specific product lines to help attract a new customer.

Richard Crystal

And also, Robin, it depends on where we started from. They may have been a lot narrower in past years. We feel that assortment is wide enough that we can narrow it this point in time. And as we're going to be controlling inventory, it's our objective to stay in size and color in those market items. And it'll be rather difficult to do that when you're lowering inventory at the same time. So we think it's fine for us. We feel our assortment even with narrowing it, and it is where we want to be.

Robin Murchison – Sun Trust

Richard, could you also characterize the current environment versus holiday. I mean, it seems to me, that it's a – there is not an enormous change, certainly, on the pattern of consumers, but maybe the retailers, or not in a such a state of shock and awe as they got caught in – in the fourth quarter. Is there another way, and maybe it's just that the inventory levels are kind of catching up with where demand is. Is that accurate or is there something more?

Richard Crystal

Yes. I think that most people have cutback their first quarter inventory. I think you'll see it more significantly as people move into the second quarter because by that time a lot of – it depends on what the life cycle of the product was. But most people by October, November, a lot of what they purchased for first quarter was there. There were some cancellations. I think it's more of – more in line with the environment. It isn't as aggressive, certainly, as it was. And certainly, we’re not. We were taking a much more fashion driven approach. If you look at our windows today versus where we were, certainly (inaudible) even last year's.

So we've cut back on promotions, and taking this time to do the right things we believe for the long term of our brand. And not putting promotions out there that are not going to be long term profitable, promotions, or brand building for us. But I do think you're right, the observation is consumer has changed, has it changed dramatically? But I do believe that the environment is certainly different than it was in the fourth quarter, although it depends on the individual retailer. But collectively, I think you'll see far less promoting as we move through this period of time.

Robin Murchison – Sun Trust

Well, as the merchandise assortment continues to evolve, quite nicely, I think – Leslie, maybe can you talk to – your thoughts about Easter. I know you don't want to specifically mention anything about the Easter shipments. But just tell me, sort of, what you're thinking about and how you're positioning the stores for Easter? And then also, when you're next – I know you've just had a recent floor update. It looks very nice. What the timing is on the next one?

Leslie Goldmann

Okay. Well, the floor set we just delivered will overall position us into the Easter period, and we feel very good about that, as Richard mentioned. The next major floor set that we're going to be delivering will be positioning us into the Mother's Day time period. But it's fairly consistent with what our – what our history or our schedule has been. As we get into the season, we'll continue to build our inventory levels on dresses and other categories that become more appropriate as the season progresses.

Robin Murchison – Sun Trust

And if I could just have one last question, where are we, Leslie, in the dress-skirt cycle?

Leslie Goldmann

Well, definitely, the customer is buying things that she doesn't have in her closet, and femininity is reigning. So anything that's feminine, dresses, skirts, raffles, things of that nature, overall, are doing well and we believe strongly in them as business drivers.

Robin Murchison – Sun Trust

Thank you very much and good luck.

Leslie Goldmann

Thank you.

Operator

(Operator instructions) Your next question comes from the line of Stacy Pak with SP Research.

Stacy Pak – SP Research

And one is, I was hoping you could give us a little bit more commentary on your spring selling, maybe some more details on what makes you more optimistic about the casual business? And if you could comment on the yoga wear? Second of all, I think you said you needed a negative low single-digit comps to leverage SG&A in the second half. How about buying an occupancy? And then third question, just on the pricing, is there – is there going to be a change on the average price going in, and what about the maintained margins? Thanks.

Leslie Goldmann

Okay. Well, I'll take your question just on the whole casual and yoga business. This is something that we – we did an intensive research program on our casual business last quarter, getting towards the middle to end of last year, and came up with a pretty comprehensive strategy that we're starting to see really take – the first – the results of that right now. One of them is, as you say, on the casual and yoga business. We've segmented it into three separate categories, we have our comfort wear. We have our in-motion, which is our performance product, and we have street wear.

And we've segmented this to drive incremental sales in casual, and are starting to see some favorable results. The in-motion and yoga category is definitely a growing business for us, and we feel strongly about it in the future. And just overall, the pants area and casual is still a bit weak for us. We have conducted exhaustive studies on that as well, and our strategy should start to take hold, probably late Q2 into third quarter, where we believe we'll see some improvements on there.

Stacy Pak – SP Research

The big change there is set?

Leslie Goldmann

In pants?

Stacy Pak – SP Research

Yes, yes.

Leslie Goldmann

It changed across the board. We've really have taken a new approach to our casual bottom fitness, from fit to styling, to assortment, to pricing, a very comprehensive approach. And again, as I said, you'll really start to see that late Q2 into Q3.

Stacy Pak – SP Research

You tested it, and feel good about it?

Leslie Goldmann

We feel good about it, yes.

Stacy Pak – SP Research

Okay. Thank you. And the numbers question?

Sheamus Toal

Yes. Hi, Stacy. This is Sheamus. We haven't gotten into disclosing the specifics of our fall numbers yet. But let me give you a sense of the spring, and you can get some perspective on how that would roll out to fall. From buying and occupancy standpoint, we can leverage those expenses in our spring season at low negative single digit comps. And from a total SG&A perspective, we can leverage SG&A in the spring season at the mid single digit negative comp rate. So I would expect, rolling out into the fall season, it would be similar to that or slightly better, as I've mentioned before, as we expect some of the cost savings to ramp up and the pricing issues to improve as we move throughout the spring and into the fall.

Stacy Pak – SP Research

Okay. And then the price – the average price in the margins, maintain margins?

Richard Crystal

We expect to maintain margins, as we said, in the spring to track similar to a year ago. There was – we hope to see improvement in the fall where we had a – we had actually a pretty good spring last year on from a margin perspective. In the fall, however, margins really collapsed, especially in the fourth quarter. So we would expect to see margin improvement in the back half of the year.

Stacy Pak- SP Research

Okay. Great. Thank you.

Operator

Your next question is follow-up question from the line of Neely Tamminga with Piper Jaffray.

Neely Tamminga – Piper Jaffray

Just one more clarification question, Richard. So it seems to us in our notes that you guys chose to not repeat a major promotion in casual bottoms, and recently pants in February. So I guess I’m just wondering on the comp guidance that you’re giving here for the first half, is that more reflective of what clearly must have been a tough, tough one related to not locking that in February? Or is it incorporating also some of the improvement you might be seeing in casual overall, perhaps tops, (inaudible). I’m just trying to get sense of the trends. Thanks.

Richard Crystal

Well, it is hard to really determine the trends. Number one, yes, we did give up some volume by not repeating the pants that we thought was not something we’d like to do for a number of reasons, including not reacting up to inventory in pants, which we felt would – well, we could have got a little more volume in the long run, it would not have been as profitable. So we do expect the trends to improve a little bit. As I stated earlier, it’s difficult now to sit here and tell you what these trends are going to be with the shift – dramatic shift for us in the Easter business. So again, we are encouraged by the trends against the plan we made. We hope the plan is an accurate plan, but we really won’t know the answer to that until the second week in April. Again, we think the fashion right, we think our colors are on track, we’re seeing good initial reaction, and we’ll see what happens as we move through Easter.

Neely Tamminga – Piper Jaffray

Great. I got that, and just one other question on the casual. You indicated, obviously, it has a significant drag-in. I’m just wondering in terms of any sort of order magnitude with respect to either the top line or from a margin perspective? Because I believe casual is the higher margin component within apparel.

Richard Crystal

Well, for us, it’s really not. We’ve seen higher margins in our wear-to-work clothes and apparel where we think we have a lot less competition, more value, and have constantly seeing higher margins there. And that being said, our margins in casual have been low because I don’t think the product has been on target. We think it’s improving. As we stated, the pant business, which is a good – big pond in the casual business, has not been on track. We’ve planned it significantly lower than the prior year until we have it straightened out. We believe we have revamped the business. The results will be pulled as we move through the end of the second quarter and into the third and fourth quarters.

But as we stated earlier, the knit top business seems to be coming around the t-shirt business. We are pleased with that aspect of the business. We are very pleased with the active wear part of the business. And as Allison explained how we’ve broken that down, and the remaining part to fix is the pant business. And when we fix that, as also stated, we expect casuals to track in line with the total business versus being a drag. So whatever that total business. If that happens, obviously, the results would be better because it’s going to be below the business that are dragging it down. So if we can get that on track and continue to improve it, then we could see some upside to where we are. But we remain cautious and conservative on our plans at this point in time. We’d rather be conservative and do better.

Neely Tamminga – Piper Jaffray

We’d rather you do that too. All right. Thanks. Good luck.

Operator

Your next question comes from the line of Jeffrey Helper [ph] with Retail Apparel Partners [ph].

Jeffrey Helper – Retail Apparel Partners

Yes. I want to ask a couple of financial questions as well. I wanted to know what your current payables were at the year-end. And are you current at them at this time? I also wanted to know what you project your cash balance to be at the end of Q1. You said that – I think you talked about it increasing. And so I don’t know if you have some sort of projection on that. And I also wanted to know about the $1.5 million charge related to the two separate transaction lawsuits in California. What were they all about? I never heard about them.

Richard Crystal

Okay. First, the cash statement. We don’t give specific cash audits, except to say that we expect at the end of the spring season to have more cash than we have at this point in time, Jeffrey. As far as the class action suits, Sheamus is going to explain them.

Sheamus Toal

Yes, you’re right. On the question on the accounts payable, in our press release, we do disclose into that. Our balance sheet, which has accounts payable broken out as of year-end. As Richard mentioned, we don’t typically disclose mid-quarter at any other time other than quarter-end, what our payables balances are, but you can certainly see the breakdown within our press release as of our year-end.

Jeffrey Helper – Retail Apparel Partners

Are they current?

Sheamus Toal

All of our payables are current, and we continue to be current with all numbers.

Jeffrey Helper – Retail Apparel Partners

Great.

Sheamus Toal

As far as the two class action lawsuits, these are lawsuits that are very similar to the lawsuits that you will see disclosed amongst many retailers in California. They are related to privacy issues, due – in cash and with obtaining customer information and telephone numbers as well as meal breaks for associates. We do disclose those in a little bit more detail within our 10-Q filing for November. So you can reference that for a little bit more detail. But they are similar cases that are disclosed by many retailers within the state of California.

Jeffrey Helper – Retail Apparel Partners

Thank you for the answers, and good luck.

Sheamus Toal

Thank you.

Operator

Your next question comes from the line of Stuart Quan[ph] with Sanders [ph].

Stuart Quan – Sanders

Yes. Hi, good morning. I just wanted to clarify, how much of your year-end inventory is associated with the e-Commerce business?

Richard Crystal

We don’t divulge that. We’ve been planning e-Commerce out as a store, we pack separate inventory for the store. We still have the ability to supplement that as we go along from regular inventory. So it’s really not something that we track separately.

Stuart Quan – Sanders

Okay. So when you mentioned your inventory – total inventory was down to 1%, but your in-store inventory was down 6.6%. And last year, your total inventory was down –

Richard Crystal

Twenty three percent for the prior year.

Stuart Quan – Sanders

– on an in-store basis. But it was down 6% total?

Richard Crystal

Correct. Right.

Stuart Quan – Sanders

Okay. So that’s –

Richard Crystal

– a lot of basis, but if you look at the apparel inventory also, which we think is important to note that on an in-store basis, the apparel inventory on units was down 14.3%. And some of that’s a function of (inaudible) in increased costs for the first quarter. As we placed the merchandise – when our prices were down. It’s also a mix issue as we have some higher priced categories, less t-shirts, more dresses, for example. So that would result in a balance of that. So we track units and dollars. We sell units, so it’s not just about dollars. And more importantly is we feel comfortable where the inventory is, rather than looking at certain numbers, but it is important that everybody takes that as a – as a guarantee that that’s going to happen. We believe we have the same stock. We sell units and we happen to have – we measure that in terms of where we want our inventory levels to be.

Stuart Quan – Sanders

Right.

Sheamus Toal

The only other thing I would add to that is, as I mentioned earlier, our in-transit inventory is a little bit higher at the percentage of our total inventory this year versus last year, which again, is an indication of the freshness of the inventory. This is brand-new inventory that is coming into the stores that is on the water right now, and our inventory in-store is at a lower level. I’ve heard you said, feel comfortable with our inventory levels right now.

Stuart Quan – Sanders

So the last year, the down 6% versus the down 23% in-store, that’s 1,700 basis points spread is just the difference of in-transit?

Richard Crystal

No, we’re talking –

Sheamus Toal

The in-store inventory numbers that we quote are excluding in-transit, and are excluding any inventory in our (inaudible), which is very small. So it is physically, the inventory that’s within the four walls of the store.

Stuart Quan – Sanders

Right. I understand, and then your total inventory is what?

Richard Crystal

The 23% and the 1% are comparable numbers. 23 last year was in-store –

Sheamus Toal

23% and 6.6% are comparable numbers.

Stuart Quan – Sanders

So the prior year, last year, in-store February 1st to 2006 –

Sheamus Toal

– down 23%.

Stuart Quan – Sanders

Right. I understand the in-store so –

Richard Crystal

Okay.

Stuart Quan – Sanders

Let me just – I’ll follow up off line.

Richard Crystal

Okay.

Operator

At this time, there are no further questions. I would now like to turn the call back to management for closing remarks.

Sheamus Toal

Just one clarification in my opening remarks. I commented that for the fourth quarter, with net income per share is actually our net loss per share as disclosed in our press release. I just wanted to clarify that.

Richard Crystal

Okay. Thank you again for joining us, and we’ll probably again be speaking to you when we report first quarter results in May.

Operator

This concludes today’s New York and Company fourth quarter and fiscal year 2008 earnings conference call. You may now disconnect.

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