New York & Company F4Q08 (Qtr End 02/02/08) Earnings Call Transcript

New York & Company, Inc. (NWY)

F4Q08 Earnings Call

March 20, 2008 9:00 am ET

Executives

Allison Malkin – Integrated Corporate Relations

Richard P. Crystal - Chairman of the Board & Chief Executive Officer

Ronald W. Ristau - President, Chief Financial Officer & Director

Leslie [Goldman] – Chief Merchant

Analysts

Lyn Walther – Wachovia Capital Markets, LLC

Neely Tamminga – Piper Jaffray

Chris Kim – JP Morgan

Lauren Levitan – Cowen and Company

Mark Montagna – C.L. King & Associates, Inc.

Barbara Wyckoff – Buckingham Research Group

Robin Murchison - SunTrust Robinson Humphrey

Eric Beder – Brean, Murray, Carret & Co.

[Jeffrey Halper] - Retail Apparel Partners

Presentation

Operator

Good morning. My name is Nelson and I will be your conference operator today. At this time I would like to welcome everyone to the New York & Company fourth quarter and fiscal year 2007 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 period. (Operator Instructions) It is now my pleasure to turn the floor over to Allison Malkin of ICR. Ma’am you may begin your conference.

Allison Malkin

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 materially from those projected in such forward-looking statements. Such forward-looking statements are subject to risks and uncertainties as described in the company’s documents filed with the SEC including the company’s fiscal year 2006 Form 10-K. Unless otherwise noted the results of operations discussed below are for the company’s continuing operations only, the New York & Company brand.

And with that I would like to turn the call over to New York & Company’s Chairman and CEO, Richard Crystal.

Richard P. Crystal

Good morning. Thank you for joining us to discuss the company’s fourth quarter and fiscal 2007 results. On the call with me today are our President and Chief Financial Officer, Ron Ristau and our Chief Merchant, Leslie Goldman. Following my opening remarks, Ron 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.

Before I talk about results I would like to provide my perspective on both brand and the business environment. We believe we have made great strides in improving the fashion content of our assortments and we are on target for our customers in key trends across the business. Our design and merchandising teams continue to work together to deliver new and compelling product that has been resonating well with our core consumers. We believe the macro environment remains challenging and we have prepared accordingly. We are highly focused on delivering merchandise assortments that are compelling, ran right and with fashion newness that will motivate our customers to buy. We also plan to continue being extremely diligent about inventory and expense management.

That said, we continue to decline in mall traffic and higher promotional activity required to drive sales caused lower profits versus the prior year in our fourth quarter. In retrospect we would also have benefited by having less inventory going into the holiday season especially in the key gift giving categories such as sweaters which caused higher than anticipated markdowns in the month of January. Excluding sales from the extra week last year our sales were down about 1%. In total for the 13 week fourth quarter net sales were $359.4 million which compared to $377.3 million in the 14 week period the prior year. Comparable store sales for the quarter declined 3.5% following a 1.1% comparable store sales increase in the fourth quarter last year and a result diluted earnings per share totaled $0.18 compared to $0.41 for 2006. During the year we did achieve some noteworthy progress on our key initiatives and maximized short term profitability by applying prudent expense and inventory management disciplines while positioning our company for sustained long term growth.

Our e-commerce business recorded strong growth with sales exceeding $10.5 million in the fourth quarter and over $22 million for the year. Our customers enjoy shopping on the web and we are also attracting new consumers to our site which will generate additional traffic and business for our stores. We rolled out our redesigned and improved site during the first quarter of 2008 and will continue to add products and functionality throughout the year to enhance the customer experience. We maintained our marketing presence with consumers and continue to enhance the visibility and strength of our brand. We have begun a brand development initiative with a major marketing firm and based on this effort we anticipate implementing new marketing strategies that are expected to further build the awareness of our brand and establish stronger emotional connections between New York & Company and our customers.

During the year we successfully opened 54 stores, we remodeled 25 and closed 12 ending the year with 3.3 million square feet. We carefully controlled our expenses. During the quarter SG&A expenses were $84 million with 23.3% of sales. We intend to imply the same discipline in 2008 in order to minimize the impact of inflation and lower leverage requirements. We completed our exit of JasmineSola which was done on time and under budget and with this effort behind us we are directing all of our resources to New York & Company. Additionally we ended the year with a strong balance sheet. Cash rose by approximately $6 million to $73.7 million and inventory on an average store basis declined approximately 6%.

As we begin fiscal 2008 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, one, continue to build our brand by offering compelling fashion assortments; two, re-invigorate our accessory business; three, strengthen our marketing to build an emotional connection to our brand; four, drive initiatives that generate increases in gross margin. We intend to further develop our e-commerce business, we plan to conserve capital and further strengthen our balance sheet and we intend to maintain prudent control of expenses and inventory.

With regard to fashion we are increasing the penetration of new fashion items within our assortment to be in excess of 20% above the prior year. Additionally we have reached out to the marketplace using several new contemporary resources to develop fashion product for us to be integrated into the New York & Company brand. For our accessory business we have upgraded the fashion and quality of our offerings while revamping our entire pricing strategy in the jewelry business. Additionally we are focused specifically on improving jewelry and handbags which represent the majority of the volume and margin of this category. To further build our brand we expect to leverage our loyal customer base through targeted marketing and expansion of our rewards program while strengthening our brand positioning with new approaches. We will also continue to focus on our visual presentation and in store experience.

We will also be more selective in our promotional strategy while maintaining our strong value message with our consumers. Our plans include the elimination of several promotions that are not in the best interest of our brand while continuing to provide value to our customers. Regarding margins, our plans are to drive higher margin sales opportunities with our new, exciting fashion items, increasing the penetration of our wear to work assortments and carefully monitoring inventory. We will continue to leverage the strength of the Internet by further understanding what our customer buys online. We intend to claim authority and fashion with more editorial content and we expect to drive traffic exponentially as well as increased conversion.

With regard to store expansion we have analyzed new store openings and have prudently scaled back our plans to include 25 to 30 new store openings and 10 to 15 remodels this year down from 54 new stores and 25 remodels in 2007. We believe we have identified strong locations and have planned 13 new stores for the first quarter. Total capital spending for the year will be reduced by approximately 35% from 2007. And lastly we will remain disciplined with regard to inventory and inventory management strategies. In fact for the first quarter we expect inventory per average store to be down in excess of 8% from last year.

Now Ron will take you through and highlight our financials.

Ronald W. Ristau

Good morning everyone. First I would like to note that fiscal year period ending February 2, 2008 includes 52 weeks versus 53 weeks in last year’s fiscal period ending February 3, 2007, with the additional week occurring in the final month of the prior fiscal year. Therefore the fourth quarter of fiscal year 2006 represents a 14 week period and compares to a 13 week period in the fourth quarter of fiscal year 2007. Net sales for fourth quarter fiscal year 2007 were $359.4 million as compared to $377.3 million in the fourth quarter of fiscal year 2006. As a reminder 2006 included $15.1 million in net sales from the extra week. Excluding the extra week net sales in the fourth quarter decreased 0.8%. Comparable store sales decreased 3.5% for the quarter. These decreases were partially offset by an increase in non-comparable store sales driven by net sales from new store openings not yet included in our comparable store base and a $9.4 million increase in net sales from our e-commerce store launched in November of 2006. In the comparable store sales base for the quarter ADS decreased 2.4% and transactions per average store were slightly lower than a year ago declining 1.1%.

Gross profit for the fourth quarter of 2007 was $103 million or 28.6% of net sales as compared to $127.6 million or 33.85 of net sales in last year’s fourth quarter. The 520 basis point decrease in gross profit versus the prior year is in part due to a 280 basis point decrease in merchandise margin primarily attributable to a decrease in comparable store sales and an increase in promotional and inventory clearance activity. We also experienced a 240 basis point increase in buying and occupancy costs as a percentage of net sales largely due to the impact of negative comparable store sales combined with an increase in real estate costs related to the impact of new and remodeled stores.

Selling, general and administrative expenses for the fourth quarter were $84 million or 23.3% of net sales as compared to $86.3 million or 22.9% of net sales during the fourth quarter of last year. The decrease in selling, general and administrative expenses on a dollar basis are primarily due to the exclusion of expenses for the extra week in fiscal year 2006. As a percentage of net sales these expenses increased by approximately 40 basis points primarily as a result of lower comparable store sales which is partially offset by the impact of lower store expenses, reduced marketing expenses and a reduction in compensation related expenses. Net income from continuing operations in the fourth quarter was $11.2 million or $0.18 per diluted share as compared to net income from continuing operations of $25 million or $0.41 per diluted share in the fourth quarter of fiscal 2006. During the quarter we opened 17 new stores, remodeled two stores and closed 7 stores ending with 578 stores and 3.3 million in selling square feet and operations.

Also I’d like to note as Richard did that as of February 2^nd, 2008 all JasmineSola stores have been closed and all other exit procedures were substantially completed. Therefore JasmineSola’s results of operations are presented as a discontinued operation in our current and historical financial statements. For the fourth quarter of fiscal 2007 JasmineSola’s net loss was $4.3 million or $0.07 per diluted share as compared to our previous guidance range of a loss in the range of $0.11 to $0.14 per diluted share.

Now let’s turn to full fiscal year 2007 results. Net sales were $1 billion $194.9 million as compared to $1 billion $153.3 million for the fiscal year ended 2007. Excluding $15.1 million of net sales from the extra week in fiscal year 2006 net sales in fiscal year 2007 increased 5%. The increase in net sales was primarily attributable to an increase in non-comparable store sales driven by net sales from new store openings not yet included in the comparable store sales base and a $21.1 million increase in net sales from our e-commerce store launched in November of 2006. These increases were again partially offset by the exclusion of the extra week of sales and a 1.3% decrease in comparable store sales. In the comparable store sales base for the year ADS, average dollar sales, decreased 1.6% while transactions per average store increased to 0.3%. Sales per selling square feet were $364 as compared to $358 last year. Our average store size continued to decline as a result of our remodel and new store opening plans. The average selling square feet per store was 5,557 feet versus 6,038 feet last year.

Gross profit for fiscal 2007 was $353.2 million or 28.7% of net sales as compared to $336.6 million or 31.8% of net sales in fiscal 2006. The 310 basis point decline in gross margin as compared to prior year is in part due to a decrease in comparable store sales and an increase in the promotional and inventory clearance activity which resulted in a 170 basis point decrease in merchandise margin. In addition we experienced 140 basis point increase in buying and occupancy costs as a percentage of sales due to the lack of leverage resulting from negative comparable store sales combined with an increase in real estate costs related to the impact of new and remodeled stores.

Selling, general and administrative expenses were $298.3 million or 24.9% of net sales compared to $284.7 million or 24.7% of net sales last year. The 20 point increase in selling, general and administrative expenses is primarily a result of reductions in marketing and corporate overhead spending partially offsetting the impact of slightly higher store expenses caused by growth in the store base combined with the impact of negative comps. Net income from continuing operations for the year was $26.7 million or $0.44 per diluted share compared to net income from continuing operations of $48.4 million or $0.81 per diluted share in fiscal 2006.

Regarding balance sheet inventory at year end was $103.9 million which is down by approximately 6% on an average store basis compared with inventory of $102.3 million at February 3^rd, 2007. The company’s balance sheet included $73.7 million in cash and working capital of $84.5 million as compared to $67.9 million in cash and $70 million in working capital as of the end of last year. Capital spending for the year was $75.5 million as compared to $77.5 million last year primarily reflecting the impact of our store opening program, remodeling programs and our continuing IT development. During the fiscal year we opened 54 new stores, remodeled 25 stores and closed 12 ending with 578 stores and 3.3 million selling square feet in operation.

We are also introducing our earnings outlook for the first quarter fiscal 2008 and for the full fiscal year of 2008. Based upon our strategy to improve margin through disciplined inventory control and targeted well planned promotion we expect comparable store sales to be in the negative mid to high single digit range in the quarter. Our current outlook for earnings per diluted share in the first quarter is in the range of $0.04 to $0.08 per share. In the first quarter we will open 13 stores and close 2 ending the quarter with 589 stores. We expect our inventory to be down by 8% to 10% per average store at the end of the quarter reflecting our disciplined inventory management. For the full year of 2008 we are planning for comparable store sales to be in the low to mid negative single digit range and earnings per diluted share to range from $0.42 to $0.52. We currently plan to open 25 to 30 stores, close 12 stores and remodel 12 stores ending the fiscal year with 591 to 596 stores. Our capital spending will be reduced to $48 to $52 million versus $75.5 million in 2007 and our deprecation expense for the year is estimated at $46 million.

We do expect to realize $8 million in annual savings from our so far identified expense reduction initiatives which we began in the third quarter of 2007. These initiatives covered all aspects of our operations and we expect this initiative to be ongoing during the year. The company for 2008 is planning lower capital spending and tight inventory control which we believe will result in a strong balance sheet throughout 2008.

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

Richard P. Crystal

In summary we continue to focus our efforts on delivering consistent fashion and value to our customers while prudently controlling expenses and inventory. Although the current environment is challenging we continue to have confidence in the future of our business, our long term strategies for growth and our ability to increase shareholder value.

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) Our first question is coming from Lyn Walther of Wachovia.

Lyn Walther – Wachovia Capital Markets, LLC

Couple questions for you, you mentioned at the ICR Exchange I thought that was interesting, you said that you were seeing some of trade down with customers. Can you elaborate on that and how are you able to measure that?

Leslie Goldman

Actually in fact we are seeing some trade down in customers and we believe that it’s actually a terrific opportunity for us. So as such we’re developing strategies to attract and cultivate this customer. But in the meantime our primary focus is still to aggressively pursue our existing customer base by offering better fashion.

Richard P. Crystal

And we have mentioned that and we have done some research studies recently with consulting firms that have given us some information based on consumer surveys.

Lyn Walther – Wachovia Capital Markets, LLC

Can you talk about some of the changes to marketing that you have planned? You mentioned eliminating some promotions, I’m just wondering how we should be thinking about that given the environment is so challenging right now.

Richard P. Crystal

As I stated we still intend to offer value, we are a value brand in spite of our DNA to speak. When we talk about eliminating promotions specifically in the first quarter we have cut out two across the board promotions 50 off the store and 40 off the store which we thought were not helpful to our brand so we talk about eliminating promotions that we don’t think were profitable and brand right but we still are a promotional brand and we still will have promotions out there. But as we increase the fashion content of our brand and we get acceptance to these new fashions and obviously we think that that will help the business and we can be a little less promotional than we were a year ago where we think we did it to excess.

Lyn Walther – Wachovia Capital Markets, LLC

And then finally just for Ron, does your guidance assume an improvement in accessories throughout as we move through 2008 because I know you mentioned seeing some improvement currently.

Ronald W. Ristau

In our guidance we have included and do expect that throughout the year that the accessory business will improve as we reposition it, particularly the jewelry business. So yes we believe that the accessory business will continue to improve throughout the year and that is included in our guidance expectations.

Operator

Our next question is coming from Neely Tamminga of Piper Jaffray.

Neely Tamminga – Piper Jaffray

Just a couple quick questions, first on the accessories again, I’m trying to get a sense, so are accessories actually comping positive again for you or are they just significantly less negative than where they were when the business kind of hit a negative inflection point?

Ronald W. Ristau

Our accessory business as you know we’ve rolled out into our stores and I think Leslie can speak to it, we’ve rolled a lot of new fashion in accessories. As we have gone through the first quarter the accessories we believe on a relative basis are going to be better and as they started to trend better we are up against in early parts of the first quarter a lot of redline and excess inventory markdowns which we did not annualize so when we look at our full price new fashion selling to new fashion selling we’re pleased with the results. And Leslie can perhaps talk a little bit about the fashion and what we’re doing.

Leslie Goldman

Again the particular focus is in our handbag and jewelry categories where we are seeing some very healthy full price business particularly in the fashion bag category, our cross bodies, the pebble grains, etcetera. And in jewelry both the clean metals and the new Bohemian looks are really starting to trend so as Ron indicated our new offering is definitely resonating with the customer.

Neely Tamminga – Piper Jaffray

So as you guys navigate through and onto Q2 which I think is really when the issue on accessories started to kind of crop up last year, could it be possible that you would then see, once you get past all this redlining activity, can you see actually positive comps on this in this category overall as you get into Q2, like before you get to that July inflection point?

Ronald W. Ristau

I think on a relative basis we think it will be scattered in what it was a year ago. We certainly would not rule out the fact that could have positive comps in the accessory area, but again we’re just approaching everything a little conservative but we’re very pleased with the development of that business and the things that we are doing both in inventory control, a fashion perspective and some of our new strategies.

Neely Tamminga – Piper Jaffray

And then just your comp metrics that you’ve been offering up here kind of imply, if I’m doing my math right, they imply that your conversion rates are up pretty handily. Can you give us a little bit of color behind that?

Ronald W. Ristau

I don’t think that would be a correct statement, Neely. The way our plans are built and what our plans anticipate is that our conversion rates per se will actually be down certainly as we take out some of these storewide promotions and times in the year where last we were more promotional than we felt was good for the brand we expect our conversion rates this year to actually decline slightly. We are building a plan and predicating our expectations upon building our average dollar sales and therefore building our margins as we offer more fashion, reduce the inventory levels thereby avoiding season end markdowns to the same extent we had last year and better modulating our pricing across the quarter. And we are therefore going to see some decline in our conversion rates but it’s being made up on ADS.

Neely Tamminga – Piper Jaffray

And then just one final question, in terms of the current floor set, I’m just wondering what you’re seeing with respect to that floor set, are people responding to the color? I was in and out with the operator so I apologize if you actually made comments on this but I’m just kind of curious how you’re viewing your current fashion floor set within sportswear and then as that relates to what’s coming on deck as you guys I think are pretty good about testing your product before you put it out there.

Leslie Goldman

Actually, Neely, we’re very pleased with the results to date on our new floor set. We’re getting a strong response to the top categories are all the fashion and novelty tops in particularly, our shift dresses that our campaign is focused on is doing very well but certainly traffic is still an issue so we’re being very cautious as we go forward, we’re not going to overestimate that impact into second quarter, but in terms of our merchandise assortment we’re actually getting very good response.

Operator

Our next question comes from Brian Tunick of JP Morgan.

Chris Kim – JP Morgan

Ron, I was hoping that you could give some commentary on the merch margins in apparel versus accessories. I know you gave some color in previous quarters.

Ronald W. Ristau

I’m sorry, what was the second part of the question?

Chris Kim – JP Morgan

Just apparel versus accessories kind of how the merch margins trended year-over-year?

Ronald W. Ristau

As we said throughout 2007 our merchandising margins in apparel were significant better, they were good, they were positive more in areas where the business got better they were less negative. However accessory margins were down throughout most of 2007 and that continued so our expectation for 2008 is that by re-assorting totally the fashion by re-approaching and restaging how we are delivering and inventorying the accessory product we can get back to driving higher margins on accessories which is what we have included in our expectations for 2008.

Chris Kim – JP Morgan

So it didn’t necessarily get worse in the fourth quarter?

Ronald W. Ristau

It didn’t get worse but it didn’t get better.

Chris Kim – JP Morgan

For Richard, you didn’t really talk about the international kind of growth opportunities this time around, any progress there? An update would be appreciated.

Richard P. Crystal

I’m going to let Ron handle that.

Ronald W. Ristau

As you know we are beginning to test some international initiative, we have signed a contract with a partner named [Alba Care] which is a publicly traded company in Saudi Arabia, they currently operate approximately 40 fashion retail brands and operate over 700 stores in the Middle East region. We have a licensing agreement with Alba Care, they will build and operate the New York & Company stores throughout the Middle East as a licensee and they will maintain responsibility for construction and operation of the stores in the area. They are going to be opening approximately six stores as they move into the early part of the third quarter of this year so we are actively engaged with them in building the stores and getting our merchandise ready to ship. We are very excited about the opportunity as are they as they believe our brand and our price points represent a significant opportunity in their market and we will continue to inform you as to how that goes. We’re just getting off the ground but it is an exciting initiative for us and I think it speaks to the international power and excitement that the brand can generate.

Chris Kim – JP Morgan

Is that a percentage of sales type of license or is it [inaudible].

Ronald W. Ristau

Without going into detail it encompasses many aspects of how the financial arrangements between the two companies are outlined. It’s a licensing agreement so there are essentially licensing payments that they make to us which have been constructed to include cost base and percentage of sales components.

Operator

Our next question is coming from Lauren Levitan of Cowen.

Lauren Levitan – Cowen and Company

Richard, I was hoping you could give us a little bit more insight into the marketing and branding work that you said you were doing. Maybe some thoughts on the timing of the analysis and if the goal was to alter the target customer that you’re directing or should we just be thinking that this is an exercise to optimize the way you are reaching that customer? And then separately with respect to the Q1 guidance we understand the impact of the reduced promotions and the lower inventory that would have on comps but I’m curious what you’re anticipating the impact to be on merchandise margins because we would expect that those reductions would have some positive impact on merchandise margins and contribute to a favorable improvement in terms of the earnings relative to the way you’ve provided the guidance currently.

Richard P. Crystal

I’ll take on the marketing and then Ron will give you insight into the margin area. In terms of marketing, marketing is an ongoing thing, it’s just going to happen all at once so we’ve been doing work over the past few months, again with a branding margin who originally worked with us to re-look at our brand, to develop a new platform basically to communicate to our customers that would resonate from the Internet to stores to windows to our mail pieces and everything else. We think that the research has told us that we’re missing a strong emotion connection with hour brand and our brand is compared with a few other brands and we get pretty decent recognition but we think we have an opportunity to improve on maybe recognition of our brands so we’re working on all different aspects of it. It’ll start to really roll out probably when we hit the third quarter. Again to develop a New York & Company connection to existing customers but also at the same opportunity to get other customers who may not know our brand. It is an ongoing process, ongoing work and you really start the benefit of that work as we move into the third quarter. In terms of the margins I’ll just say quickly that we expect merchandise margins to be up and obviously the impact of the negative sales and that’s where we have come to our guidance. I don’t know if you want to elaborate more on that, Ron.

Ronald W. Ristau

I think the key point on merchandise margin is that we felt that last year looking at our merchandise margin and how we were faced with the slowdown in traffic and so on in the general market, that we needed to take a very hard look at the inventory and we’re flowing the inventory and take a look at where our markdowns and margin suppression was really coming from last year and as Richard indicated we have to maintain the value component of our product and we stay focused on that but we believe that there are more creative ways for us to promote the brand as opposed to some of the all store events we went to which were effective in driving conversion but also drove significant levels of markdowns and also because we didn’t believe we were restrictive on the inventory flows last year. There’s a significant opportunity for us by managing our inventory better, turning everything faster, our fashion, our pant categories, our jewelry categories we significantly upped our turn card as that will therefore enable us to avoid the same levels of season end markdowns that we ended up taking last year and the result of that is that we believe there are significant opportunities to improve our merchandise margin, that’s what we’re seeing early in the quarter and that’s what we intend to continue to press on, not only this quarter but throughout 2008. So it’s continuing to give the customer value and great value and we will continue our aggressive couponing programs but we attempted a more melding together of our in store promotion and our marketing driven promotion which combining that with lower inventory I believe we will get improved margin. That is the whole theory of our plan for this year.

Lauren Levitan – Cowen and Company

I guess related to that is on the lower square footage growth and on the other expense initiatives that you have in place what type of comp level do you see being required to leverage both the SG&A line and the occupancy line given you’re looking for merchandise margin improvements but the flip side is some of these strategies are also likely to drive negative comps.

Ronald W. Ristau

As you know there are several things going on this year with expenses, of course there is just general inflation in many costs, there is a lot of those pressures to deal with. Our intention to work through our cost savings initiatives to minimize the impact of any inflation that we might realize and get the company in position so that we could keep our SG&A expenses from de-leveraging even if the company went into a negative 2% to 3% comp scenario. And that’s what we intended to do. And what we intend to do as we go through the year is to work as diligently as we can to keep our SG&A expenses in the range of let’s call it 25% of sales like we averaged in 2007 so that we will continue to flex our efforts to avoid de-leveraging unless the situation just gets significantly worse than we would have anticipated. So that’s what we intend to do, that’s how we set up our initial plans, that’s what we just started driving to in the third quarter and that is how we are going to approach the effort throughout the year.

Operator

Our next question is coming from Mark Montagna of C.L. King.

Mark Montagna – C.L. King & Associates, Inc.

Just following up the question about SG&A leverage, it sounds like if you’re shooting for about 25% of sales, you’re also shooting for about flat on a dollar basis for SG&A. Would that be fair?

Ronald W. Ristau

We can’t run flat on a dollar basis, there will be some level of inflation in those expenses. I don’t think we can hold them flat, I don’t think that that would be realistic with 26 new stores and everything else. But we’re trying to minimize the growth in SG&A expenses. So, flat I think would be too extreme. But I think as a percentage of sales basis we’re going to make every effort we can to hold it as close as possible to 25% and avoid any de-leveraging.

Mark Montagna – C.L. King & Associates, Inc.

Just looking at cap ex, can you tell me what percentage of that will be maintenance cap ex?

Ronald W. Ristau

Yes, I can. Let me give you an answer to the question this way, our capital expenditures will be about 66% of focus on new stores and our remodeling activity, 23% of capital spending this year will be focused on information technology and then about another 11% will be focused on other, primarily the rebuilding of our design studios here in New York. So that’s how we’re going to spend our capital, we have significant IT projects which should drive productivity and drive further expense savings and inventory management improvements, we are going to be initiating a new POS system rollout throughout the year and we are upgrading our planning system so the JDA Enterprise platform which we will believe will give us greater flexibility in controlling our inventories as we go forward. So we’re going to stay focused on that and then our store capital approximately 60% to 65% of it is new stores and the remainder is in remodeling.

Mark Montagna – C.L. King & Associates, Inc.

So the IT upgrades you’re really not going to see the benefits of that until next year probably?

Ronald W. Ristau

Well we hope to get many of the benefits in place particularly on the POS system for the fourth quarter of 2008. For instance we will be rolled out in about 40 stores before the end of the first quarter and we would expect to do the remainder of the stores throughout the second quarter and into the beginning of third with a goal of being done by holiday. If everything works well we’ll have that done before our computer cutoffs are in place. Worst case we might run 50 to 75 stores into the first quarter of 2009 but we’re very pleased with the progress and we’re very excited about the benefits that we get in a significant improvement in transaction speed, store efficiency, processing savings, we expect better turn control, better coupon control, new capabilities for customer relationship in our rewards program. So it really is a significant upgrade and we’re anxious to get it in because we just really love this system. It’s a data managed POS systems and the people in our stores in particular and in backroom operations people are all very excited about this project.

Mark Montagna – C.L. King & Associates, Inc.

Then I just wanted to go back and focus on merchandise margins, accessories we know did poorly last year. In some prior quarters I think you had said that the merchandise margin accessories was down about 1,000 basis points. I’m not sure if that’s accurate. I’m trying to understand, was it roughly down 1,000 basis points for the year of 07? Because it helps us understand the magnitude of the opportunity for this year.

Ronald W. Ristau

The 1,000 basis points – I’m trying to search for that.

Mark Montagna – C.L. King & Associates, Inc.

I thought it was the third quarter that you might have said that. It was either second or third quarter.

Ronald W. Ristau

I don’t have that information, the third quarter here with me. I can research that and get back to you on it. The fact is that our merchandise margins in accessories throughout the year were challenged and the opportunity for improving them is significant from both a fashion and from an inventory management perspective and we would expect to see improvement in our accessories margin in 2008. That’s one of our main stated goals and that’s what we’re working very diligently to realize.

Operator

Our next question is coming from Barbara Wyckoff of Buckingham.

Barbara Wyckoff – Buckingham Research Group

I have a couple of questions, can you talk about the penetration of wear to work and accessories to the total, where was it in 07, where do you expect it to be in 08? And then I have a couple of other questions.

Leslie Goldman

First in terms of the penetration of wear to work and accessories certainly we see the wear to work is a growth distortion for us. For our accessories penetration our goal is really to get it back to its historical rates of about 13 to 14% of the total and that would be our goal ultimately for 2008. In terms of wear to work to casual or the other parts of the business, the penetration is definitely up. I wouldn’t exactly call it exactly where but we are looking to distort this.

Barbara Wyckoff – Buckingham Research Group

And then anything notable happening in casual, Leslie, that might help this business going forward?

Leslie Goldman

We are getting some good traction on some of our new fashion tops, this is actually happening across the board and we’re looking to accelerate that going into second quarter. We’ve delivered what we call our comfort wear assortment, you can see that on our website as well which is really speaking to a new leisure type of leisure apparel that our customer might wear that’s less driven by track suits and more driven by related separates and our initial reads on this product are healthy but again we’re experimenting with a lot of different things and tempering our expectations until we can really work out the formula a little bit more.

Barbara Wyckoff – Buckingham Research Group

And then the fashion product that’s coming from the domestic market is coming when?

Leslie Goldman

We’ll start to see that filtering through late in the first quarter and into second quarter, but what should be noted is this is all going to be in the context of our own brand. This will be all New York & Company merchandise and it will work seamlessly with the rest of our assortment in the store.

Barbara Wyckoff – Buckingham Research Group

Ron, I didn’t hear the percentage of aged goods in the mix at the end of January versus last year.

Ronald W. Ristau

Percentage of aged goods? We don’t usually quote that but our inventory being down 6%, our inventories are much fresher, our carry over goods were substantially lower as we moved into the month of February and we will continue to keep that inventory robust and fresh throughout the year, to a much greater extent than we did last year and we’re going to do that by controlling absolutely the flow of inventory each quarter. So you’ll be seeing the inventories down substantially as we move throughout the year.

Barbara Wyckoff – Buckingham Research Group

And then I guess last question is, is how are you planning the revenues for e-commerce? You expect it to grow or expect it to stay in that $10 to $15 million a quarter?

Ronald W. Ristau

We’re planning for significant growth in that business and we would expect the growth in that business to be in the 30% to 40% range across the year.

Operator

Our next question is coming from Robin Murchison of SunTrust Robinson Humphrey.

Robin Murchison - SunTrust Robinson Humphrey

Just a few questions here, did you comment on product costs this year versus last year?

Richard P. Crystal

On what, Barbara, we missed that, what did you say?

Robin Murchison - SunTrust Robinson Humphrey

Did you comment on product costs this year versus last year?

Richard P. Crystal

Product costs, okay. I’m sorry. No we did not. I’m going to let Ron talk to you through that.

Ronald W. Ristau

On product costs obviously there are no questions, there are some cost pressures from the Asian areas primarily due to the decline of the dollar and some inflation going on in China. We do believe the cost registers are manageable, and we continue to have a diversified manufacturing base so we have a continuing presence in countries which have always been strong alternatives to China. That being said, China is of course a key and important player for us. Our intent is to focus on, as Leslie and Richard have both indicated, we’ve got to shift our fashion mix, we have to drive and focus on MMU, we may get some slight reductions in IMUs as a result of this but we feel that the improvement in MMU by getting our fashion right, adjusting our mix, also getting our accessories growing, improving the penetration of wear to work as Leslie has indicated and also importantly managing that inventory flow we’ll be able to more than offset any cost pressures we might experience from improvements in our MMUs.

Robin Murchison - SunTrust Robinson Humphrey

Two other questions, one on your international initiatives, you’ve got this Middle East partner, should we assume that their stores are in the Middle East or are they elsewhere?

Richard P. Crystal

The stores will be in the Middle East.

Robin Murchison - SunTrust Robinson Humphrey

And then lastly for Leslie, can you comment on how bottoms are trending just sort of across the board be it denim, capris, I know you’ve got some shorts, I don’t know that there’s a lot to say about that right now. But can you just comment on bottoms as a category and what you think is going to work, what might be trending down, what might be trending up?

Leslie Goldman

Bottoms is really our core competency, we are best at pants. So we are continuing to drive our unique attribute of our best, our proportioned fit, etcetera. We are seeing strength in our updated fashion basis pants as well as novelty shorts. The weakness in all categories now frankly is in the truly basic replacement items. So anything that we have in bottoms that is newer and more of the fashion trend is doing better for us than true basic.

Robin Murchison - SunTrust Robinson Humphrey

Leslie, there’s been some discussion of capris and crops kind of subsiding as a preferred category or an important category, this may not be true for the older female sense, crops and capris sort of officially become your version of a short, but what is your expectation for that category?

Leslie Goldman

I still think as we get into season, Robin, that our customer will be buying bottoms. I think the initial response early in the season, particularly in this environment will always trend to the items that she doesn’t have and that are the newest. And the newness is definitely in the tops category right now. I do believe as we get later in the season and the second quarter that the Bermuda short business, the capri business, etcetera will accelerate but as Ron has indicated on several times here we really have been very tight with our inventory, we’re very disciplined. So I think that we will achieve our goals and not have excess inventory there.

Operator

(Operator Instructions) Our next question is coming from Eric Beder of Brean, Murray.

Eric Beder – Brean, Murray, Carret & Co.

Could you talk a little bit about the roll out of the body products and how they’ve done?

Leslie Goldman

Our City Beauty, you mean? The bath and body?

Eric Beder – Brean, Murray, Carret & Co.

Yes.

Leslie Goldman

We launched the City Beauty business in holiday and we also launched lip glosses this current season. It’s a business that we plan to be in in the long term and really learn about so we’re taking our time with our growth. Keep in mind that this is really a very small part of what our total business is, but I think the most exciting part of this was the launch of the lip glosses that we just did and I think our customer is seeing this as a part of really a fashion accessory to her, so we’re looking to expand on this really, potentially add some more color and product into the mix and we’re just going to monitor the results slowly and we’re in for the long haul.

Eric Beder – Brean, Murray, Carret & Co.

Could you talk a little bit specifically about denim? I know you’ve rolled out some new categories for fall and kind of redid some of the classifications I believe. Could you talk a little bit about that? What kind of trends have been in denim and what’s working?

Leslie Goldman

Our denim business actually has greatly improved in the last year and we believe that that’s due to the introduction of fashion trousers into the mix which are really brand appropriate for our market sector. We plan to continue with this viable business going forward, fortunately it’s also very trend right and again we’re really strengthening our core, strengthening our proportion fit attribute which very few people have, fully proportioned fit. So that’s our overall denim strategy go forward.

Operator

Our final question is coming from Jeffrey Halper of Retail Apparel Partners.

Jeffrey Halper - Retail Apparel Partners

I wanted to go over two things with you, first was you mentioned the word contemporary in your presentation regarding new vendors or new merchandise coming into the stores. Will this be merchandise that is designed to attract perhaps a younger customer into your store, or a hipper customer, or to just fill out something that you thought was missing in the store? How do you feel about and can you be sort of specific? These vendors come perhaps from the place, maybe something beneficial that came from JasmineSola. Was there something in there that vendor wise came around that this could be a good thing?

Leslie Goldman

The intention of bringing in our market partners is really to ensure that we’re truly in step, in fashion, very currently rather than waiting to react to it and while we have a terrific design team and truly believe that we’re representing great fashion for our brand we just want to take additional steps to ensure that we’re on trend. And yes, as a matter of fact, the idea of this did germinate off of the JasmineSola business. We found particularly in the fad fashion categories, like cotton sewn knits and sweaters that that’s really where we had the best opportunity to capitalize on some of this fast turn, fast action fashion and that’s really how we’re planning to proceed with this.

Richard P. Crystal

In terms of contemporary, I think it’s just the resource structure that comes out in that marketplace. The merchandise will look like our merchandise. The key to success is that you won’t come in and say this is market goods, it will look like it belongs as part of our brand and it just might push the fashion envelope a little more but it is geared towards predominantly our customers who have told us through, again, research that they want fashion when they see it at higher price points. So we think it’s an opportunity for us to expand into a marketplace that we think can generate ideas, all the piece goods, production, sizing, everything will be done with the standards of New York & Company and again we believe it will just integrate seamlessly into our brand. With that being said maybe we can help attract some trade down customers. So the idea is not to change what the assortment will be, but just ensure that we utilize the marketplace for new ideas and in this environment I think there can’t be enough newness out there. So we want to continue to look for it.

Jeffrey Halper - Retail Apparel Partners

So I would just tell you that I’m very pleased to hear that. I think it’s a very good way to go to make the stores look a little spruced up, sort of like [inaudible] and cherries and you’re right, who knows what it could bring in and so I compliment you on that. The second part of my question is a financial question related to Bear Stearns and their merchant banking, do you have any impact from what is going on there because now I’m sure you must have thought about it, could you share some of your thoughts with us?

Richard P. Crystal

The only thing I can say is on Sunday, JP Morgan announced an agreement to acquire Bear Stearns and it includes Bear Stearns Merchant Banking. Bear Stearns Merchant Banking is an independent affiliate of Bear Stearns. They have a significant amount of independent capital that funds management. Bear Stearns represent the largest sale of a New York company. We did not anticipate this transaction but any impact on day to day operations, we’re a publicly traded company on the New York Stock Exchange, we have our own assets, we have our own independent finances and a variety of shareholders and we have neither in the past nor do we intend to currently in the future speculate on the intentions of our shareholders. So we are focused on improving our profitability, creating shareholder value.

Ronald W. Ristau

Is Mark Montagna still on the phone?

Operator

Mr. Montagna if you could please press star 1.

Mark Montagna – C.L. King & Associates, Inc.

I’m here.

Ronald W. Ristau

Mark, I just wanted to get back to you on your question, merchandise margins. I’ve just gone through our merchandise margins by quarter. I don’t know where you got the 1,000 point decline, that’s not true. Our merchandise margins in the accessory business got substantially worse than a year ago. It started in first quarter, got worse in the third quarter, got absolutely worse in the fourth quarter, but at its height it was down about 750 basis points in that quarter. But in the fourth quarter with our new merchandise starting to flow, we did see an improvement in that margin decline so that for the year we were actually down in the range of 200 basis points. I just wanted to make sure you knew that.

Operator

There appear to be no further questions. I would now like to turn the floor back to management for any closing remarks.

Richard P. Crystal

Thank you again for joining us. We look forward to speaking to you when we report first quarter results in May, if not sooner.

Operator

This does conclude today’s New York & Company fourth quarter and fiscal year 2007 earnings conference call. You may now disconnect and have a wonderful day.

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