New York & Company's (NWY) CEO Greg Scott on Q3 2014 Results - Earnings Call Transcript

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New York & Company, Inc. (NYSE:NWY) Q3 2014 Results Earnings Conference Call December 3, 2014 4:30 PM ET


Allison Malkin - ICR

Greg Scott - CEO

John Worthington - President and COO

Sheamus Toal - EVP and CFO


Rebecca Duval - BlueFin Research Partners

Mark Montagna - Avondale Partners


Good day and welcome to this New York & Company Third Quarter 2014 Earnings Conference Call. Today’s conference is being recorded.

At this time, I would like to turn the conference over to Ms. Allison Malkin of ICR. Please go ahead, ma’am.

Allison Malkin

Thank you. Good afternoon.

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 Litigation Reform Act of 1995. Actual results may differ 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 2013 Form 10-K.

I'll now turn the call over to Greg Scott, Chief Executive Officer.

Greg Scott

Thank you, Allison and good afternoon, everyone.

With me on the call today is John Worthington, our President and COO and Sheamus Toal, our Executive Vice President and Chief Financial Officer.

While our third quarter results were slightly improved from our revised expectations, it was nonetheless a challenging quarter as our results missed the expectations we set at the start of the period.

Our top and bottom line results were impacted by late merchandize deliveries due to shipping delays at West Coast ports, longer lead times and increased cost of goods diverted to the East Coast as part of our contingency plan and increased air freight to secure critical goods.

In addition, we were also impacted by core product acceptance in our wear-to-work collection from a fashion perspective as compared to the prior year. While wear-to-work is important category in the third quarter, it becomes less important in the fourth quarter as we shift into a more gift-giving assortment for the holiday season,

In total, for the third quarter, net sales were $210 million, compared to $217 million in the prior year. Cost or sales declined 3.4% following the 3% increase in the prior year quarter. Operating loss adjusted to exclude our headquarter relocation; consulting and certain severance cost was $6.7 million. This compares to an adjusted net loss of $3.1 million last year.

There were several positives in the quarter that reinforced our belief that we have indentified and are implementing the right strategies to increase sales productivity and long-term profitability at New York & Company.

One, we experienced positive trends in important metrics. Traffic trends were favorable during the quarter and improved over the trend experienced in recent quarters. We believe it's important -- this improvement validates that our brand is strong with our target demographics and that New York & Company is in a key shopping destination for consumers.

That said, our UPTs were lower than planned given our delivery issues, which resulted in lower ADS and contributed to our sales shortfall. Number two, we advanced our omni-channel goals. Over the past years we have focused on resource -- we had focused our resources on creating a more dynamic business model for New York & Company.

Understanding that the retail landscape has changed significantly and continues to evolve, this model gives us omni-channel capabilities to best serve our customer, no matter where we shops along with a keen focus on our growth businesses eCommerce and outlet.

John Worthington, our newly appointed President and COO, who is on the call with us today, will provide further details on the progress of our omni-channel initiative following my remarks and we believe this represents a significant opportunity for future growth.

In terms of consolidated sales, while the comp store sales trends were negatively impacted by delivery delays within our fashion assortment, the negative trends did improve later in the quarter as inventory levels improved.

From a merchandize perspective, we saw positive comps in our downtown business, driven by strong product acceptance in casual sweaters, downtown tops, dresses and the Eva Mendes collection, even as we anniversary the Eva launch from the prior year.

Turning to the channels of our business, our growth businesses, eCommerce and outlet continue to represent an increasing portion of our total business and we continue to believe they will enable us to increase productivity and profitability long term.

During the quarter, our eCommerce channel delivered a double-digit increase in sales. Contributing to this result was a strong performance in e-com exclusives, driven by strength in pants, denim and dresses. We continue to experience an increase in conversion throughout the quarter, driven by improvements across those mobile devices and desktops.

We implemented new ways to bring customers to the site along with new promotions to drive improvement in UPT and ADS. In the quarter we added functionality of digital enhancements to our site to increase conversion and drive our eCommerce performance in the fourth quarter and beyond. We continue to see strength in conversion over the prior year in both desktop and mobile.

Turning to the outlook business, this channel continues to highly productive for us despite challenging traffic trends during the quarter. We continue to be successful with outlet exclusive products, which carries a higher margin and strongly differentiates this channel from both our New York & Company stores as well as our eCommerce business.

Outlet exclusives grew to over 80% of total sales up from 70% in the last year's third quarter. During the quarter, we opened five new outlet stores and ended the period with 62 locations. We continue to see an opportunity for approximately 100 New York & Company outlet locations.

While our core New York & Company stores -- within our core New York & Company stores, we were pleased to see traffic levels approximately flat to the year ago period, which is an improvement versus our recent quarterly trends as our marketing initiatives began to gain traction.

Additionally, over the past several years we have also focused on closing under productive locations and downsizing existing locations to improve profitability. While these store closures have negatively impacted sales, the majority of these closures are now behind us.

As we move forward with a more stable fleet, we believe that the continuation of our strategy of downsizing and remolding existing locations will drive improvement and sales productivity and profitability.

As we move into the fourth quarter and holiday season, our comp store sales results for November improved from the trend experienced in the third quarter and while we expect the environment to remain challenging, which is reflected in our guidance, we remain focused on the opportunities we have identified to drive sales and margin.

We remain focused on driving sales during the holidays and peak traffic times, to capitalize on holiday season we have several compelling events in place. Our overall theme of the holiday is focused on holiday giving, gifts, glamour and more.

First we launched the holiday period in November week three, with our pre last Friday promotions to capture early sales in the quarter. This was followed by our Black Friday deal strategy as we look to capitalize on peak traffic with compelling deals to drive transactions and increase conversion. Black Friday is focused on key gifts that our customer comes to expect from New York & Company for herself and for giving.

Cyber Monday successfully started this past Sunday and continued into Monday. We were pleased with our Cyber Monday results during the period.

Moving now to Black Friday and Cyber Monday, we focus on glamour, both on holidays and for gifting. In early December, we delivered an exciting new fashion book, which included New York & Company products and the Eva Mendes holiday collection.

This book focuses on our 10 most irresistible gifts for the holiday along with getting ready for the holiday focused on the glamour of the Eva Mendes collection.

The second Saturday of December, we focused on giving back to others. On Saturday, December 13, we will match our customer's contributions to the St. Jude Organization. Throughout the very generous donations of our customers and employees, we have raised over $13 million for St. Jude over the past seven years.

Finally we wrap up with our 12 days of Wishing and Giving, which is our gifting promotion and we believe this will enable us to capitalize on the final days of the Christmas season as our customer moves into strong gifting focus.

Leveraging our partnership with Eva Mendes is a cornerstone of our strategy throughout the holiday season and across many of our events. We already see how this collaboration is driving conversion with a strong ADS while attracting new customers to our ramp.

In November week one and December week one, we introduced new Eva Mendes collections in our stores and online, which provides continued freshness to our offerings and a reason for our customers to shop again. The Eva Mendes collection is a significant focal point of our gifting strategy for holiday.

We believe that the Eva Mendes brand continues to represent strong opportunities for future growth and we continue to see strong reaction to the collection. We are currently planning the launch of small collection of bridesmaids dresses for January and in two locations and we will introduce shoes for our March collection.

We're excited about this partnership and are thrilled with having Eva Mendes as a partner. Catch Eva today on the Ellen Show.

While we started November with continuing delivery issues caused by the West Coast port delays, which carried on throughout the month of November, and into Black Friday, we believe that we are well positioned as we enter December as many of our late deliveries from October and November have begun to hit our stores.

We believe that we will continue to see strength in our sweater and accessory business including cold-weather separates. We also will deliver a new gifting assortment during December week two focused on sweaters and a new streetwear collection which was very successful for us in September.

In summary, we are pleased with the improvement in traffic in the third quarter as these two metrics speak to the strength of our brand. While we expect the environment to remain highly promotional, we believe we have a dynamic marketing plan in place to drive our business during the holiday season.

Finally, I would like to welcome John Worthington, our new President and Chief Operating Officer to New York & Company. As many of you know, John joined us in November following a 20-year carrier with Kohl's, where he was intimately involved with developing and executing strategy and store operations, productivity, people development, technology, store design, eCommerce and real estate.

We expect this addition along with the combined efforts of our executive team to position our company for improved operating performance and positive long-term growth.

Before I turn the call over to Sheamus to review our financials in more detail, I would like to have John walk you through some of the progress we have made with our omni-channel initiatives, which we continue to see improved results and see this as an integral part of our future growth strategy.

John Worthington

Thanks Greg. Good afternoon, everyone.

Before we move into omni-channel, let me first begin by telling you how excited I am to be a part of New York & Company.

I truly believe we are positioned for growth with significant opportunities to build upon the strategies that are currently being implemented to create a more powerful brand that is well positioned. I am very excited to help drive that sustained long-term growth.

As many of you know over the past few years we have focused our resources to create a more dynamic business model and we believe omni-channel will be a significant component to this future model. We have developed a comprehensive phased approach to omni-channel, which we believe will provide a seamless integration to our store, digital and customer service channels and these efforts will begin to pay meaningful dividends in 2015 and beyond.

The first phase of this approach was launched back in 2010 with the implementation of what we call AskUs, which is the in order -- in-store ordering of out of stock items through our POS registers with fulfillment through the e-com fulfillment center.

In 2012 Phase 2 expanded the capability to not only include the eCommerce fulfillment, but broaden the fulfillment capabilities to include all our New York & Company stores. This year in 2014, we introduced Phase 3 of our omni-channel strategy and we were very pleased with the early success of this phase, which included enhanced capabilities for buy online, pick up and store.

We believe this will help meet our customer's needs while also providing an opportunity to drive traffic to our stores and increase sales through add-on purchases. We are also excited to be currently testing the newest phase of our omni strategy buy online ship from the store, which will provide a seamless customer experience with intelligent order routing capabilities.

We believe this will increase our conversion rates, driving increases in sales and further improve margin by optimizing inventory utilization.

And with that, I would like to turn the call over to Sheamus to review our financials in more detail.

Sheamus Toal

Thank you, John. Good afternoon, everyone.

Net sales for the third quarter were $210.3 million as compared to $217.6 million for the third quarter of last year. Comparable store sales decreased 3.4% as compared to an increase of 3% for the third quarter of fiscal year 2013.

In the comparable store sales base, average dollar sales per transaction decreased by 5.3% while the number of transactions per average store increased by 1.9% as compared to the same period last year.

The company’s growth channels continue to experience increases in sales with growth experienced in eCommerce and outlets partially offset by decreased sales in the New York & Company core stores, resulting from our store closures, combined with negative comparable store sales.

Gross profit as a percentage of net sales decreased by 80 basis points versus the prior year period. The decrease in gross profit reflects improvements in product cost, offset by increased promotional activity, higher freight cost and a deleveraging of fixed occupancy expenses on lower net sales.

As previously disclosed, during the third quarter, the company incurred $1 million of duplicative rent expenses related to the relocation of our corporate headquarters, $800,000 of severance and recruiting expenses and $1 million of consulting expenses associated with a cost reduction program initiated during the quarter.

This resulted in a total of $2.8 million of one-time cost being charged to selling, general and administrative expenses increasing our operating loss and net loss for the third quarter of fiscal year 2014. All non-GAAP figures for the third quarter referenced on this call exclude the impact of these charges.

Selling, general and administrative expenses on a GAAP basis increased by $2.6 million as compared to the prior year period, primarily reflecting the $2.8 million of incremental cost I just mentioned. On a non-GAAP basis, selling, general and administrative expenses were essentially flat for the year ago period.

GAAP operating loss was $9.5 million. On a non-GAAP basis, the adjusted operating loss was $6.7 million as compared to the prior year's third quarter operating loss of $3.1 million. GAAP net loss for the third quarter of fiscal year 2014 was $9.7 million or $0.15 per diluted share. On a non-GAAP basis, the company's adjusted net loss was $6.9 million or $0.11 per diluted share. This compares to the prior year's net loss of $3.4 million or $0.05 per diluted share.

Total quarter end inventories increased 1.4% as compared to the end of last year's third quarter, reflecting slightly higher levels of in-store inventory, partially offset by lower levels of in-transit inventory.

Capital spending for the third quarter of fiscal year 2014 was $10.3 million as compared to $5.6 million in last year’s third quarter, primarily due to the remodeling of six New York & Company stores and the opening of six new stores including five outlet stores in addition to the relocation and build out of the corporate headquarters.

The company ended the quarter with $57.7 million of cash and no outstanding borrowings under our revolving credit facility as compared to $37.4 million in cash at the end of last year's third quarter.

As previously announced, during the third quarter of fiscal year 2014, we amended our credit facility with Wells Fargo Bank on more favorable terms and added a $15 million secured term loan financing, which was funded during the quarter.

The amendments to the existing agreement provide for an extension of the term of the revolving credit facility to October 2019; a reduction of interest rates and the reduction of certain fees relating to the revolving credit facility.

The borrowing availability under the active base revolving credit facility remains unchanged, providing the company with a $75 million credit facility and a fully committed accordion option that allows us to increase the revolving credit facility to up to $100 million at our discretion.

In connection with the amended agreement and to assist in the funding of the build-out of our new corporate headquarters in New York City, we secured a $15 million, five-year term loan.

As previously announced during the third quarter, we engaged a leading global business advisory firm to assist us in analyzing our business prophesies and organizational structure in an effort to identify cost savings and business improvement strategies.

In connection with our analysis, we recently initiated an organizational realignment, which included the elimination of numerous positions in our corporate offices. As a result of the organizational changes made, we expect to save $9 million to $10 million in expenses, $1.5 million of which will be realized in the fourth quarter of fiscal year 2014.

In connection with this reorganization, we expect to record a charge of $2.2 million during the fourth quarter for severance and related benefits resulting from the reorganization. The business process analysis is ongoing and we believe we will identify further opportunities to improve our business, increase our efficiencies and reduce costs.

We plan on providing further updates of the progress, timeline and potential savings in other areas of our business when we release fourth quarter and full year operating results.

Regarding expectations for the third quarter of fiscal 2014, the company is providing the following guidance. Net sales and comparable store sales are expected to be flat to down in the low single digit percentage versus last year.

Gross margin is expected to be down approximately 200 basis points from the prior year’s rate, reflecting improved product cost offset by increased promotional activity.

Increased freight and shifting cost resulting from our contingency plans and response to the recent port delays and the unstable labor situation in West Coast ports and decreased leverage of our buying and occupancy cost. Selling, general and administrative expenses are expected to be up approximately $7 million from last year, reflecting non-recurring charges of approximately $5.9 million.

These nonrecurring charges include $2.5 million in duplicative rent, $1.2 million of onetime moving expenses associated with the relocation of our corporate headquarters and $2.2 million of severance related expenses.

In light of a onetime nature of these charges, we are providing operating income guidance on a non-GAAP basis. Non-GAAP adjusted operating income for the fourth quarter of fiscal year 2014, excluding the non-recurring charges of $5.9 million is expected to be approximately breakeven as compared to the prior year's operating income of $7.2 million.

And non GAAP adjusted net income for the fourth quarter is also expected to be approximately breakeven as compared to the prior year net income of $6.9 million.

We currently expect on-hand inventory at the end of the fourth quarter fiscal year 2014 to be up by a low single digit percentage versus the end of the fourth quarter last year.

In transit inventories, are expected to be up significantly due longer lead times associated with our contingency plans surrounding the ongoing port delays and due to the acceleration of certain early spring deliveries. Total inventory is expected to increase in double-digit range primarily due to the higher levels of in-transit inventory.

With respect of the continuing challenges of the West Coast port delays, we have made the decision to air several of our critical shipments for December and January to set ourselves up for the start of spring season in February. At the same time, we have shifted the majority of our shipments to the East Coast, which results in additional lead time and the higher levels of in transit goods.

Capital expenditures for the fourth quarter of fiscal year 2014 are projected to be between $14 million and $16 million as compared to $6.2 million capital expenditures in the fourth quarter of last year. This increase reflects the continued investments in information technology and eCommerce and capital expenditures of approximately $7 million related to the company's previously disclosed relocation and build out of its new corporate headquarters.

Depreciation expense for the fourth quarter of fiscal year 2014 is estimated at $7 million. The company plans to end fiscal year 2014 having opened 12 new stores, including 11 outlet stores, remodeling 11 existing locations and closed approximately 16 stores ending the fiscal year with 503 stores including 62 outlet stores and approximately $2.6 million in selling square feet.

The company does not anticipate the need to borrow under this credit facility during the fourth quarter of fiscal year 2014.

With that, 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 Instructions] And we will take our first question from Rebecca Duval with BlueFin Research Partners.

Rebecca Duval

Hi, guys. Thank you for taking my call. I have a couple questions. One first on the port delays and now kind of dealing with this longer lead time.

I know, Greg, that you're very conservative on your initial buys and inventory and now that we don't know the uncertainty on the West Coast ports, how do you plan on managing that since you tend to be more conservative and chase into business where you see it necessary.

Is that going to put a kink in the current strategy and how do you plan on maneuvering around that? And the second -- go ahead.

Greg Scott

So a couple…

Rebecca Duval

Go ahead and start there. You go ahead.

Greg Scott

Thank you. So a couple things. First as I stated or Sheamus stated on our prepared remarks, really beginning with the end of December deliveries we've moved a majority of our goods to come through East Coast ports really until the West Coast is really in a place where we can really be certain about our deliveries that really hampered our Q3 predictability, our deliveries.

That said, what we've done is add an additional about two weeks to all of our deliveries to accommodate that and we believe beginning really in the February and March period, we'll be more on time based on that that will allow those extra two weeks for the East Coast deliveries.

In terms of chasing goods, what I'll say is for Q1 it's always been -- always been a little more difficult. Chinese New Year is in February this year. Last year it started a little earlier. That always is a predicament in terms of chasing goods for that early part of the delivery and you have to go out a little more fully committed.

What I will say is that as we move into the April-May period, if the conditions on the West Coast have not improved, we will then suddenly the airing goods that we believe we need to be fast tracking that are great fashion trends that we identify early and that would be slightly different than what we've done in the past, but I think that is one way we plan to get around really getting goods in quicker.

And obviously we position fabric like we always do ready to go and we're already testing spring and summer. My first test is in stores right now. I have a resort test going in, in two weeks. We're already getting spring and summer reads, which really helps us make these decisions for that April May period.

Rebecca Duval

Great. Thank you. It's very helpful. The second question is you talked about a little bit of a decline in UPTs, especially in Q3 as not having all the goods there, which kind of planning a little bit ahead of time and getting your gifts giving options and can you give us a little color on what you’ve seen to date with Black Friday especially?

Have you seen an improvement on the UPTs and its traffic trends continued to be improved or stabilized for you?

Greg Scott

Yes, so really what we've saw obviously as in Q3, we definitely were hurt on some UPTs. One of the things that we found there was because the full collection wasn’t there all at the same time, the full outfitting assortment we were not able to actualize those outfits as we plan and tested them. So that really did affect us into Q3.

So as we moved into Q4, I think the early part of November we definitely saw continued issues and compression on our UPT and basically we have the same delivery issues as we started November with that November stack.

As we move through the holiday period, we plan to see UPTs moderate back as we get more into our gift giving with it being sweaters, cold weather goods, jewelry, we hope to see UPT start to moderate.

What I am encouraged about for fourth quarter really is that we are seeing a strong sweater trend. We're seeing a strong accessory trend and you’ve not heard me say that for almost four years. So that is a good thing as we move into the quarter and I think jewelry has really stabilized as well. So those are goods or categories that should lead to better or improved UPTs from Q3.

Rebecca Duval

Great. And then just one last question please. It seems like your eCommerce is growing even better than expectations, so are you kind of raising the bar on that growth in terms of a timeline for that?

Greg Scott

Yes, so it is growing better than our expectations. As I said, Cyber Monday which was extended Cyber Monday for us albeit was successful for us. What we're really starting to see with eCommerce is obviously we put a lot of work into getting our site to the place it is today and this happened over many years.

And what we're seeing is we're finally seeing the fruits of our labor pay off with really improved conversion and holding those average dollar sales with improved conversion and a couple things are happening.

One is as John spoke about AskUs phase three, I am sorry, real GAAP, AskUs phase three or omni-channel phase three where it's order online, pick up in store, that began really in late October and we saw an immediate response to that and what we saw was the customer demand for product that she never was able to see online was very strong and already what we're noticing is we have the opportunity to build our inventories even stronger and offer our eCommerce site as we move into Q1, Q2, Q3 or next year, we believe we have not even begun to see what really the demand is and what I say that is prior to us really launching AskUs you were only able to shop those items that online/e-com had in stock.

What was in our stores was not available to the consumer. When we turned on order online pick up in store we exposed all of this inventory. Well the response was pretty dramatic and we noticed how much more demand there was.

So through AskUs phase three and then the roll out of order online, ship from store, I really believe we can continue to see our eCommerce business grow. We believe there is more upside than I even sell probably three months ago and our team there is just continuing to do a very strong job.

Rebecca Duval

Great. Well thanks so much and I do have to concur that they accessories look really amazing, so good job there and best of luck.

Greg Scott

Thank you, Rebecca.


And we'll take our next question from Mark Montagna with Avondale Partners.

Mark Montagna

Hi, couple of more questions on the port delays. Wondering if you can help us understand in the third quarter, how much did that hinder your comps? How much did it cost markdowns? I am trying to understand say the EPS impact and when did you first see those delays? How much was it delaying $0.04, were you only getting like half of the merchandize in, just trying to get a better grasp on that?

Greg Scott

So I am going to pick up piece of it and I am going to let Sheamus really go through the financial piece of it. Really as we mentioned before, that we really stated seeing delays in the product happen in July. What really affected our July floor stack was really our kick off to the fall season, our very successful [Panama] [ph] event.

And what we were seeing for the first time I think since I've been with the company is on time delivery rate in the 50% and 60% for floor set. That is very low for us and it really hurts the ability to convert. It really hurts the ability to drive UPT. We saw this for the July week four pan event, September week one fashion event.

We saw this for October week one and quite frankly if we went all the way to November week one and Black Friday and in fact in Black Friday there were several items that we did have even have for Black Friday that were planned to be there.

That said, those goods have now hit our DC as I said in our my scripted remarks, I believe we're in a much better position as we move into December because of the Black Friday and all the other related goods have now hit us.

Going back into Q3 however, when the fashion goods and there are four specific set obviously as that set moves along, it's hard to keep goods in front of the store and you do get reduced selling of those goods at full price and their life is much shorter and I think it was very hard to plan. It was very hard on our field. It was something we have not been used to in the past.

Obviously we're a much stronger company because of it today and I think we all know a lot more longshoremen labor negotiations that I ever wanted to know and I'll let Sheamus then speak about really the financial impact we believe we saw Q3 and possibly into Q4.

Sheamus Toal

Yes, so as Greg mentioned, it's a little difficult for us to determine the precise financial impact, because it's not only affecting the goods that were late, but it also effects our entire set and it affects outfit selling for items that go with that particular item. So it's a little bit difficult to determine the precise number.

That being said, based upon our analysis, we believe that it definitely contributed to our sales shortfall anywhere from probably about two percentage points in terms or comps or greater, in terms of a sales shortfall resulting from the late merchandize.

As Greg also said, because of the late merchandize it does unfortunately have a negative impact on the sell-through of that good -- those goods and the markdown rate. And as we look at the deterioration of our overall gross margin and particularly the merchandize margin, we believe a larger portion of that is attributed to the later merchandize.

So the two things that affect the merchandize margin associated with the later merchandize is first and of its additional markdowns as we have less time to sell those goods. So that certainly contributed to the merchandize margin shortfall and our merchandize margin were down about 30 basis points during the quarter.

The second impact in terms of merchandize margin is obviously the higher freight cost -- expenses that we incurred associated with our contingency plans and notice coming in different forms. So first and most obvious, we obviously aired certain goods and incurred incremental air cost during the quarter.

Those amounted to approximately $2 million in incremental air cost during the quarter, but in addition to those incremental air cost, we also incurred slightly higher cost to deliver goods to the East Coast as opposed to the West Coast and incremental freight cost even when goods landed on the East Coast or West Coast to try to accelerate the receipt of those goods in our store.

So we did various things like team trucking in certain instances for critical goods airing them to our stores from our DC. So the combination of that we believe drove really of the decrease in terms of merchandize margin and if we did not have the port delays, we would have experienced increases in merchandize margin.

Mark Montagna

So once these port -- do you think that these port delays were say 75% on the earnings miss to expectations or 50% or may be 100%?

Sheamus Toal

As I said, it's difficult to quantify an exact percentage, but certainly I would not attribute the entire miss in our results to the port delays. I think it was a significant factor. I think as I said in terms of our negative comps, we negatively comp at about 3.5% and we believe that a significant portion of that was attributed to the port delays.

Mark Montagna

Okay. So then looking at the fourth quarter, just looking at the numbers fourth quarter expectations are below we are on the street, how much of that do you think is because of port delays, is port delays a bigger impact here in the fourth quarter or was it bigger in the third quarter?

Sheamus Toal

I think it's both. So as Greg mentioned in his comments in his comments certainly the delays in merchandize continued into November and even in terms of our Black Friday goods, that did not arrive in the stores for Black Friday. So we're receiving all those goods now. So there certainly is an effect in the fourth quarter and I would say it's somewhat similar in terms of the delayed impact of the goods.

In terms of some of the incremental cost, at this point we're still evaluating contingencies for the latter part of the quarter and responding to ever changing conditions in terms of the ports and particularly the labor situation on the West Coast, but at this point we would envision that the incremental air cost could be as significant in Q4 as they were in Q3 or even slightly higher.

So there is certainly an impact and that obviously is contributing to the merchandize margin and gross profit reductions that we're projecting for Q4. Again, a large portion of that reduction is driven by those incremental markdowns on goods that we have less time period to sell as well as the incremental cost associated with receiving those goods.

Mark Montagna

Okay. And then last quick question is you mentioned traffic flat for the quarter, which is pretty good. How did that trend throughout the quarter? Was it steady traffic quarter that you see from acceleration?

Greg Scott

So when I was speaking to traffic really what we were speaking to in our core New York & Company stores we were really speaking of traffic. And what I was saying in the quarter, what I was pleased about the -- was that even beginning as early as July, which was in Q2, we were starting to see traffic improve and you saw cash flow positive traffic in August, in September, little less positive in October for pretty much flat traffic and it was very much up against what we thought was going on in the industry meaning that we were seeing trends we were talking about were not strong.

We were pleased to see that our traffic trends were strong and we we're also still getting the converters in -- last year's converters in. So we look at that as a positive metric.

I think the challenge in the quarter and our core stores really came through on the UPT levels we talk about earlier, but I will say that just overall what we are seeing across both outlet New York & Company core store and eCommerce, traffic has been improving really all year with traffic being obviously the worst the February and March and then really starting to improve in the later summer months and kind of maintaining that trend. So it gives us hope/confidence as we move into 2015.

Mark Montagna

Okay. Thank you.


[Operator Instructions] And we do have Mark Montagna with Avondale Partners

Mark Montagna

Hi, guys. I thought maybe there were other questions. I was going to be nice enough to jump out. So hoping you can expand on that accessory trend? It sounds like jewelry is doing better. Help me understand what's driving, is it metals or is it color, big necklaces or what else is driving accessories, handbags, belts whatever?

Greg Scott

So a couple of things are happening in accessories. First I think that for the first time in a very long time, our handbag/small gifting items are doing very well. They've opened up very well in November. We had a really strong November and then they were good.

Belts continue to be incredibly soft, really bad, you don't want about right now. We haven’t found what it leads. We opened up really strongly with ponchos/capes, which are in this category, which is now transitioned into winter wear scarves, hats and gloves, which has opened up incredibly well, which is really good and then lastly footwear.

Footwear had never really been -- it's a small business in accessories, but we see some opportunities. It never really had been a business for us, but we started selling really low heeled pumps in Q3. We have a version of a fur trimmed boot in holiday that's doing unbelievably well. We're testing things for next year like pajama sets that have done well for holiday, so all good news there.

And what I would say about jewelry, jewelry has really kind of stabilized. We are seeing metals working. We have not -- our customer has not accepted necessarily the delicate metal trend yet and that's happened even fine jewelry. I think the most accessible jewel we've had in a very long time we did this St. Jude collection where we gave 50% of the proceeds to St. Jude. I have never seen jewelry sell so fast.

So obviously with something our customer really can relate to. She loved the jewelry giving back to St. Jude was very successful. So for the first time in probably four years, I am talking about a positive trend in jewelry and accessories, which is good to see.

Mark Montagna

So what made that St. Jude collection so special and can you bring it back in?

Greg Scott

It's coming back. So I think there is a couple things. First we worked almost seven months on this collection because it was St. Jude. We wanted to be really special. It's a beefier metal. It looks incredibly expensive. It's a bracelet, a keychain and a necklace that does three things; sold out in online in almost two days.

We knew we had hit immediately. We are bringing it back for Mother's Day in Silver. We will go back doing a collaboration with St. Jude on it. I think it just really spoke to the heart quite frankly and that it and it looked really nice as well and I think it all came together to be a really fine collection and something to build on for us I think.

Mark Montagna

So it doesn’t sound like color is much of anything within jewelry whether it's necklaces, earrings, bracelets?

Greg Scott

No, it's not like in 2010 and 2011 when color was so critical, color is super hit in that statement necklaces are still selling, but they're not those fancy color necklace. Obviously the trend out there is fine jewelry. It's thin, it's small chains, its rings and that fine jewelry trend has not necessarily translated for us that we keep hitting the way again.

Mark Montagna

Okay. And then it sounds like the outlet comp was positive, just want to verify that.

Sheamus Toal

We don't really -- I am sorry, we don't really disclose our comps by the channels. We speak to how e-com was up in the 12 digits. I think what our comments on outlet really were it continues to be a highly productive channel. The stores that we opened all were doing at or above pro forma.

We continue to see this as a strong channel. We're happy with exclusives and I think our confidence shows in I think our range there is hugely around we're going to be 75 stores. I kind of -- we emphatically said, we believe it's 100. So I think that that was a subtle yet deliberate change in how we describe future of our outlet growth.

Mark Montagna

Okay. And then lastly, what is your ultimate count on regular stores, has it changed and just remind us of what it is and when you'll get there and what the average store size will be by the time you get to that point?

Sheamus Toal

Yes so, what we've talked about in the past is we believe that the core New York & Company stores can be in the range of 425 to 450 and when we supplement that with the expansion of the outlet channel, as Greg mentioned a 100 stores.

That positions on a consolidated basis with over 500 stores and layering in the strong eCommerce business and the capabilities of omni-channel as John mentioned earlier, we believe the three of those combined will enable us to achieve our long-term strategy.

So in terms of the overall footprint of the stores and the size of the stores, obviously as I think you know over the past few years we've done a lot of work in downsizing some of our existing locations for particularly the New York & Company stores such that right now our typical store, our average across the chain is about 5200 square feet.

We believe that that can come down slightly. There still are some stores that we can downsize and I think we've commented in our prepared remarks about the ability to downsize those as part of our strategy to increase productivity and profitability of those stores.

So that's an initiative that we will continue to look forward to and invest in as we move beyond this year and believe that it will enable us to really move to the next level and improve our overall productivity and profitability.

In terms of the outlet stores, the outlet stores are smaller footprint typically about 4500 square feet. As Greg mentioned and as we've talked in the past they're highly productive stores. Their return on investment is very significant and rapid for us which is why we've diverted a lot of our new store openings in recent years to that concept.

And why we've commented today that we believe that we can increase that channel up to 100 stores. And as I said, the combination of all three of those really plays into our long-term strategies and then we believe will position us to move the company to the next level.

Mark Montagna

Okay. Well outlet be part of the omni-channel.

Sheamus Toal

Well it depends on how you look at omni-channel. So I think that that's been issuing from in terms of shipped from store pick up in store right now they're not really turned on for that capability.

When we talk about omni-channel whether the customer where she shops, when she shops, can she use the New York & Company credit card across all channels, we say yes, it is part of New York & Company experience, but in terms of its technology today, have asked us when they enter store, they don't have a chip from another store or in a store they don't have it shipped from online because our online site is really just the New York & Company product, it's not carried outlet exclusive, it's not part of that program.

Mark Montagna

Okay. All right. That actually was my last question. So thank you.

Greg Scott

You didn't have a question on Eva Mendes?

Mark Montagna

Well I don't think I should ask that here.

Greg Scott

Okay. All right.

Mark Montagna


Greg Scott



And with no further questions in queue, I would like to turn the conference back over to Mr. Greg Scott for any closing remarks.

Greg Scott

Thank you again for joining us. We wish each of you a happy and healthy holiday season and New Year. We look forward to speaking with you when we report our fourth quarter results in March. Thank you.


Ladies and gentlemen that does conclude today’s conference. We do thank you for your participation. You may now disconnect. Have a great rest of your day.

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