Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

---

FORM 10-Q

COMMISSION FILE NUMBER: 1-32315

NEW YORK & COMPANY, INC.
(Exact name of registrant as specified in its charter)

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o    No o

        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

        Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý

        As of August 27, 2010, the registrant had 59,994,854 shares of common stock outstanding.

---

Table of Contents

TABLE OF CONTENTS

i

---

Table of Contents

PART I.
FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

New York & Company, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

See accompanying notes.

1

---

Table of Contents

New York & Company, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

See accompanying notes.

2

---

Table of Contents

New York & Company, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

See accompanying notes.

3

---

Table of Contents

New York & Company, Inc.

Notes to Condensed Consolidated Financial Statements

July 31, 2010

(Unaudited)

1. Organization and Basis of Presentation

        New York & Company, Inc. (together with its subsidiaries, collectively the "Company") is a leading specialty retailer of women's fashion apparel and accessories offering "NY Style" at Great Deals. The Company's proprietary branded New York & Company® merchandise is sold exclusively through its national network of retail stores and E-commerce store at www.nyandcompany.com. The target customers for the Company's merchandise are fashion-conscious, value-sensitive women between the ages of 25 and 45. As of July 31, 2010, the Company operated 581 stores in 43 states.

        The accompanying condensed consolidated financial statements include the accounts for New York & Company, Inc. and Lerner New York Holding, Inc. ("Lerner Holding") and its wholly owned subsidiaries, which include Lerner New York, Inc. (and its wholly owned subsidiaries, which includes Lerner New York Outlet, Inc.), Lernco, Inc. and Nevada Receivable Factoring, Inc. On a stand alone basis, without the consolidation of Lerner Holding and its subsidiaries, New York & Company, Inc. has no significant independent assets or operations. All significant intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary to present fairly the financial condition, results of operations and cash flows for the interim periods.

        The condensed consolidated financial statements as of July 31, 2010 and August 1, 2009 and for the 13 weeks ("three months") and 26 weeks ("six months") ended July 31, 2010 and August 1, 2009 are unaudited and are presented pursuant to the rules and regulations of the United States Securities and Exchange Commission ("SEC"). Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the 52-week fiscal year ended January 30, 2010 ("fiscal year 2009"), which were filed with the Company's Annual Report on Form 10-K with the SEC on April 6, 2010. The 52-week fiscal year ending January 29, 2011 is referred to herein as "fiscal year 2010." The Company's fiscal year is a 52- or 53-week year that ends on the Saturday closest to January 31.

        Due to seasonal variations in the retail industry, the results of operations for any interim period are not necessarily indicative of the results expected for the full fiscal year.

2. Restructuring

        On January 8, 2009, the Company announced the launch of a multi-year restructuring and cost reduction program that is expected to generate approximately $175 million in pre-tax savings over a five-year period. This program is designed to streamline the Company's organization by reducing costs and eliminating underperforming assets while enhancing efficiency and profitability.

        The key components of the restructuring and cost reduction program include:

•

Strategic staff downsizing resulting in a permanent reduction of approximately 12% of the Company's field management in its existing stores and an approximate 10% reduction of corporate office professionals;



•

The optimization of the Company's store portfolio, including the closure of 40 to 50 underperforming stores over a five-year period; and

4

---

Table of Contents

New York & Company, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

July 31, 2010

(Unaudited)

2. Restructuring (Continued)

•

A broad-based cost reduction effort across all aspects of the Company's business.

        In total, the Company recorded pre-tax restructuring charges of $24.5 million during the fourth quarter of fiscal year 2008, which includes a non-cash charge of $22.9 million related to the impairment of store assets and a $1.7 million cash charge related primarily to severance and other costs necessary to implement the restructuring and cost reduction program. In addition, during the third and fourth quarters of fiscal year 2009, the Company recorded additional pre-tax restructuring charges totaling $2.4 million, which includes a non-cash charge of $1.2 million related to the impairment of store assets and $1.2 million of cash charges related to severance.

        As previously announced, the Company is exiting an underperforming test accessories concept consisting of five stores. In connection with the exit of this concept, during the second quarter of fiscal year 2010, the Company recorded pre-tax restructuring charges totaling $2.1 million, which consists of non-cash charges of $1.1 million related to the impairment of store assets, $0.8 million related to the write-off of inventory and $0.1 million of severance costs. The asset impairment charges and severance costs totaling $1.2 million are reported in "Restructuring charges" and the inventory write-off of $0.8 million is reported in "Cost of goods sold, buying and occupancy costs" on the Company's condensed consolidated statements of operations.

        As of July 31, 2010 and January 30, 2010, severance related accruals of approximately $0.6 million and $1.0 million, respectively, are included in accrued expenses on the condensed consolidated balance sheets. As of July 31, 2010, the Company had paid approximately $2.5 million in total for severance liabilities related to the restructuring and cost reduction program.

        The Company does not currently expect to record any material restructuring charges for these matters during the remainder of fiscal year 2010.

3. Earnings Per Share

        Basic (loss) earnings per share are computed by dividing net (loss) income by the weighted average number of shares of common stock outstanding for the period. Except when the effect would be anti-dilutive at the continuing operations level, diluted (loss) earnings per share are calculated based on the weighted average number of outstanding shares of common stock plus the dilutive effect of share-based awards (stock options, unvested restricted stock, stock appreciation rights and performance

5

---

Table of Contents

New York & Company, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

July 31, 2010

(Unaudited)

3. Earnings Per Share (Continued)

awards) calculated under the treasury stock method. A reconciliation between basic and diluted (loss) earnings per share is as follows:

        The calculation of diluted loss per share for the three and six months ended July 31, 2010 excludes 4,993,626 and 4,340,495 potential shares, respectively, due to their anti-dilutive effect. The calculation of diluted loss per share for the three and six months ended August 1, 2009 excludes 3,937,819 and 3,834,762 potential shares, respectively, due to their anti-dilutive effect.

4. Share-Based Compensation

        The Company accounts for all share-based payments in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification^TM ("ASC") Topic 718, "Compensation—Stock Compensation" ("ASC 718"). ASC 718 requires that the cost resulting from all share-based

6

---

Table of Contents

New York & Company, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

July 31, 2010

(Unaudited)

4. Share-Based Compensation (Continued)

payment transactions be treated as compensation and recognized in the consolidated financial statements.

        The Company recorded share-based compensation expense in the amount of $0.6 million and $0.5 million for the three months ended July 31, 2010 and August 1, 2009, respectively, and $1.1 million and $0.9 million for the six months ended July 31, 2010 and August 1, 2009, respectively.

        On April 1, 2010, in connection with the Company's annual performance review process for all associates, the Company issued 540,000 shares of restricted stock and 770,000 stock appreciation rights ("SAR"), all of which are scheduled to vest on April 1, 2013, subject to continued employment with the Company through such date. In connection with the appointment of Gregory Scott as the Company's President on June 1, 2010, Mr. Scott received an award of 750,000 SARs that vest in four equal annual installments through June 1, 2014, subject to continued employment with the Company through such date. Each SAR represents the right to receive a payment measured by the increase in the fair market value of one share of common stock from the date of grant of the SAR to the date of exercise of the SAR. Upon exercise, the SARs will be settled in stock.

        The fair value of restricted stock is based on the closing stock price of an unrestricted share of the Company's common stock on the grant date, which on April 1, 2010 was $4.79. The fair value of a SAR is calculated using the Black-Scholes option-pricing model, which for the April 1, 2010 SARs resulted in a fair value of $2.90 per SAR and for the June 1, 2010 SARs resulted in a fair value of $2.40 per SAR. Total compensation expense related to the restricted stock and SARs granted will be recognized in the consolidated financial statements on a straight-line basis over the requisite service period of the awards.

        During the six months ended July 31, 2010, 82,769 shares of common stock were issued upon exercise of stock options.

5. Pension Plan

        The Company sponsors a single employer defined benefit pension plan (the "plan") covering substantially all union employees. Employees covered by collective bargaining agreements are primarily non-management store associates, representing approximately 9% of the Company's total employees. The collective bargaining agreement with the Local 1102 unit of the Retail, Wholesale and Department Store Union ("RWDSU") AFL-CIO has been extended indefinitely, subject to 30 days advance notice by either party to negotiate a modification to the agreement or to terminate the agreement.

        The plan provides retirement benefits for union employees who have attained the age of 21 and complete 1,000 or more hours of service in any calendar year following the date of employment. The plan provides benefits based on length of service. The Company's funding policy for the pension plan is to contribute annually the amount necessary to provide for benefits based on accrued service. The

7

---

Table of Contents

New York & Company, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

July 31, 2010

(Unaudited)

5. Pension Plan (Continued)

Company anticipates contributing approximately $0.8 million to the plan during fiscal year 2010. Net periodic benefit cost includes the following components:

6. Income Taxes

        The Company files U.S. federal income tax returns and income tax returns in various state and local jurisdictions. In November 2008, the Internal Revenue Service ("IRS") began its examination of the Company's U.S. federal income tax return for the 2006 tax year. During the third and fourth quarters of fiscal year 2009, the IRS communicated its intention to audit the Company's 2007 and 2008 federal income tax returns, as well as the Company's previously settled 2005 federal income tax return as a result of the Company's refund claims carrying back the Company's net operating losses. In addition, the Company is subject to U.S. federal income tax examinations for the Company's 2009 tax year and each year thereafter and state and local income tax examinations for the 2006 tax year and each year thereafter.

        At January 30, 2010, the Company reported a total liability of $2.5 million for unrecognized tax benefits, including interest and penalties, all of which would impact the Company's effective tax rate if reversed. There were no material changes to the liability for unrecognized tax benefits during the six months ended July 31, 2010. The Company does not anticipate any significant increases or decreases to the balance of unrecognized tax benefits during the next 12 months.

        The effective tax rate for the three months ended July 31, 2010 reflects a provision of 33.7%, as compared to a benefit of 40.2% for the three months ended August 1, 2009. The effective tax rate for the six months ended July 31, 2010 reflects a provision of 24.3%, as compared to a benefit 42.2% for the six months ended August 1, 2009.

        The change in the effective tax rate during the three and six months ended July 31, 2010, as compared to the same periods last year, is primarily due to a $48.5 million non-cash charge to income tax expense during the three months ended July 31, 2010, which includes a $48.0 million valuation allowance against the Company's deferred tax assets and a $0.5 million reserve for uncertain tax positions. The valuation allowance at July 31, 2010 is comprised of a $17.9 million valuation allowance provided on the balance of net deferred taxes at January 30, 2010 and a $30.1 million valuation allowance provided on the tax benefit resulting from the net operating losses and other deferred tax assets generated during the six months ended July 31, 2010. The Company concluded that a full

8

---

Table of Contents

New York & Company, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

July 31, 2010

(Unaudited)

6. Income Taxes (Continued)

valuation allowance against the Company's deferred tax assets was necessary in order to reflect the Company's assessment of its ability to realize the benefits of those deferred tax assets. The Company made this determination after weighing both negative and positive evidence in accordance with FASB ASC Topic 740, "Income Taxes" ("ASC 740") which requires that deferred tax assets be reduced by a valuation allowance, if based on all available evidence, it is considered more likely than not that some portion or all of the recorded deferred tax assets will not be realized in a future period. The evidence weighed included a historical three-year cumulative loss related to earnings before taxes in addition to an assessment of sources of taxable income, existing tax planning strategies, and future projections of earnings. The Company will continue to maintain a valuation allowance against its deferred tax assets until the Company believes it is more likely than not that these assets will be realized in the future. If sufficient positive evidence arises in the future indicating that all or a portion of the deferred tax assets meet the more likely than not standard under ASC 740, the valuation allowance would be reversed accordingly in the period that such determination is made.

7. Long-Term Debt and Credit Facilities

        The Company's credit facilities currently consist of a term loan, of which $10.5 million was outstanding at July 31, 2010, and a $90.0 million revolving credit facility (which includes a sub-facility available for issuance of letters of credit of up to $75.0 million), both having a maturity date of March 17, 2012. As of July 31, 2010 and January 30, 2010, the Company had no borrowings outstanding under its revolving credit facility.

        The maximum borrowing availability under the Company's revolving credit facility is determined by a monthly borrowing base calculation that is based on the application of specified advance rates against inventory and certain other eligible assets. As of July 31, 2010, the Company had availability under its revolving credit facility of $63.1 million, net of letters of credit outstanding of $7.3 million, as compared to availability of $55.9 million, net of letters of credit outstanding of $7.9 million, as of August 1, 2009.

        The revolving loans under the credit facilities bear interest, at the Company's option, either at a floating rate equal to the Eurodollar rate plus a margin of between 1.00% and 1.25% per year, depending upon the Company's financial performance, or the Prime rate. The Company pays the lenders under the revolving credit facility a monthly fee on outstanding commercial letters of credit at a rate of 0.625% per year and on standby letters of credit at a rate of between 1.00% and 1.25% per year, depending upon the Company's financial performance, plus a monthly fee on a proportion of the unused commitments under that facility at a rate of 0.20% per year. The term loan bears interest at a floating rate equal to the Eurodollar rate plus 2.50% per year. If any default were to exist under the revolving credit facility and for so long as such default were to continue, at the option of the agent or lenders, the monthly fee on outstanding standby letters of credit may increase to 3.25% per year, interest on the revolving loans may increase to 3.25% per year above the Eurodollar rate for Eurodollar rate loans and 2.00% per year above the Prime rate for all Prime rate loans, and interest on the term loan may increase to the Eurodollar rate plus 4.50% per year.

        The Company's credit facilities contain certain covenants, including restrictions on the Company's ability to pay dividends on its common stock, incur additional indebtedness and to prepay, redeem,

9

---

Table of Contents

New York & Company, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

July 31, 2010

(Unaudited)

7. Long-Term Debt and Credit Facilities (Continued)

defease or purchase other debt. Subject to such restrictions, the Company may incur more debt for working capital, capital expenditures, stock repurchases, acquisitions and for other purposes. The terms of the Company's credit facilities also subject it to a minimum fixed charge coverage ratio of 1.00 to 1.00, if the Company's borrowing availability under its revolving credit facility plus qualified cash falls below $30.0 million ($20.0 million during March and November). Should the Company fully repay its existing term loan, the Company will only be subject to the minimum fixed charge coverage ratio in the event that borrowing availability under its revolving credit facility falls below $12.5 million. In addition, the Company is required at all times to maintain minimum borrowing availability under its credit facility of $10.0 million. The Company is currently in compliance with the financial covenants referred to above.

        The lenders have been granted a pledge of the common stock of Lerner Holding and certain of its subsidiaries, and a first priority security interest in substantially all other tangible and intangible assets of New York & Company, Inc. and its subsidiaries, as collateral for the Company's obligations under the credit facilities. In addition, New York & Company, Inc. and certain of its subsidiaries have fully and unconditionally guaranteed the credit facilities, and such guarantees are joint and several.

8. Fair Value Measurements

        FASB ASC Topic 820, "Fair Value Measurements and Disclosures" ("ASC 820") establishes a common definition for fair value to be applied to United States generally accepted accounting principles ("GAAP") guidance requiring the use of fair value, establishes a framework for measuring fair value, and expands the disclosure about such fair value measurements. ASC 820 establishes a three-level fair value hierarchy that requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs used to measure fair value are as follows:

        The Company's financial instruments consist of cash and cash equivalents, short-term trade receivables, accounts payable and long-term debt. The carrying values on the balance sheet for cash and cash equivalents, short-term trade receivables, and accounts payable approximate their fair values due to the short-term maturities of such items. The carrying value on the balance sheet for the Company's long-term debt approximates its fair value due to the variable interest rate it carries, and as such it is classified within level 2 of the fair value hierarchy.

        In accordance with the provisions of FASB ASC Topic 360, "Property, Plant and Equipment" ("ASC 360"), during the three months ended July 31, 2010, certain long-lived store assets held and used with a carrying value of $24.3 million were written down to their fair value of $8.0 million, resulting in a pre-tax non-cash impairment charge of $16.3 million, of which $15.2 million relates to

10

---

Table of Contents

New York & Company, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

July 31, 2010

(Unaudited)

8. Fair Value Measurements (Continued)

underperforming New York & Company stores and is reported in "Selling, general and administrative expenses" and $1.1 million relates to a test accessories concept and is reported in "Restructuring charges" on the Company's condensed consolidated statements of operations. Refer to Note 2, "Restructuring" for other charges incurred in connection with exiting the underperforming test accessories concept. The Company classifies these store assets within Level 3 of the fair value hierarchy. The Company evaluates long-lived assets for recoverability in accordance with ASC 360 whenever events or changes in circumstances indicate that an asset may have been impaired. In evaluating an asset for recoverability, the Company estimates the future cash flow expected to result from the use of the asset and eventual disposition and market data assumptions. If the sum of the expected future undiscounted cash flow is less than the carrying amount of the asset, an impairment loss, equal to the excess of the carrying amount over the fair value of the asset, is recognized.

9. Share Repurchases

        On November 26, 2008, the Company announced that its board of directors had authorized the repurchase of up to 3,750,000 shares over a 12 month period. During fiscal year 2009, the Company repurchased 1,000,000 shares of its common stock at a cost of approximately $3.4 million.

        On November 18, 2009, the Company's board of directors authorized the extension of the share repurchase program for an additional 12 month period ending on November 23, 2010. Repurchases, if any, will be made from time to time in the manner the Company believes appropriate, through open market or private transactions, including through pre-established trading plans. During the six months ended July 31, 2010, the Company did not repurchase any shares of the Company's common stock under the Company's authorized share repurchase program.

10. New Accounting Pronouncements

        In May 2009, the FASB issued ASC Topic 855, "Subsequent Events" ("ASC 855"), which establishes general standards of accounting for the disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued. ASC 855 is effective for interim or annual financial periods ending after June 15, 2009 and is applied prospectively. The Company adopted the provisions of ASC 855 effective August 1, 2009, with no material impact on its financial position or results of operations. In February 2010, the FASB issued Accounting Standards Update ("ASU") No. 2010-09, "Subsequent Events" ("ASU 2010-09"), which amends certain provisions of ASC 855 by removing the requirement for SEC filers to disclose the date through which subsequent events have been evaluated. ASU 2010-09 is effective upon its issuance in February 2010, and its provisions have been adopted by the Company by the removal of the date subsequent events were evaluated in the footnotes to the Company's consolidated financial statements. The adoption of ASU 2010-09 did not have any impact on the Company's financial position and results of operations.

        In January 2010, the FASB issued ASU No. 2010-06, "Improving Disclosures about Fair Value Measurements" ("ASU 2010-06"), which amends ASC 820 by providing new disclosures and clarifying existing disclosures. ASU 2010-06 requires reporting entities to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the

11

---

Table of Contents

New York & Company, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

July 31, 2010

(Unaudited)

10. New Accounting Pronouncements (Continued)

reasons for the transfers. In addition, ASU 2010-06 requires the presentation of separate information regarding purchases, sales, issuances, and settlements for Level 3 fair value measurements. ASU 2010-06 also clarifies the existing disclosures about the level of disaggregation to require fair value measurement disclosures for each class of assets and liabilities and clarifies that a description of inputs and valuation techniques used to measure fair value is required for both recurring and nonrecurring fair value measurements classified as Level 2 or Level 3. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Except for the detailed Level 3 roll forward disclosures, the guidance in ASU 2010-06 was adopted by the Company on January 31, 2010 with no material impact on its financial position and results of operations. The Company does not anticipate that the adoption of the remaining provisions of ASU 2010-06 regarding detailed Level 3 roll forward disclosures will have a material impact on its financial position or results of operations.

12

---

Table of Contents

ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND RISK FACTORS

(Cautionary Statements Under the Private Securities Litigation Reform Act of 1995)

        This Quarterly Report on Form 10-Q includes forward looking statements. Certain matters discussed in "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" and other sections of this Quarterly Report on Form 10-Q are forward looking statements intended to qualify for safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. Some of these statements can be identified by terms and phrases such as "anticipate," "believe," "intend," "estimate," "expect," "continue," "could," "may," "plan," "project," "predict" and similar expressions and include references to assumptions that the Company believes are reasonable and relate to its future prospects, developments and business strategies. Factors that could cause the Company's actual results to differ materially from those expressed or implied in such forward looking statements, include, but are not limited to those discussed under the heading "Item 3. Quantitative and Qualitative Disclosures About Market Risk" in this Quarterly Report on Form 10-Q and:

•

the Company's business is impacted by general economic conditions and their effect on consumer confidence and spending patterns, which have deteriorated significantly and may continue to do so for the foreseeable future;



•

the current economic conditions could negatively impact the Company's merchandise vendors and their ability to deliver products, as well as the Company's retail landlords and their ability to maintain their shopping centers in a first-class condition and otherwise perform their obligations as a landlord;



•

the Company's ability to open and operate stores successfully, including its new New York & Company Outlet stores, and the potential lack of availability of suitable store locations on acceptable terms;



•

seasonal fluctuations in the Company's business;



•

fluctuations in comparable store sales and results of operations;



•

the Company's ability to anticipate and respond to fashion trends, develop new merchandise and launch new product lines successfully;



•

the Company's dependence on mall traffic for its sales;



•

the Company's dependence on the success of its brand;



•

competition in the Company's market, including promotional and pricing competition;



•

the Company's reliance on the effective use of customer information;



•

the Company's ability to service any debt it incurs from time to time as well as its ability to maintain the requirements that the agreements related to such debt impose upon the Company;



•

the susceptibility of the Company's business to extreme and/or unseasonable weather conditions;



•

the Company's ability to retain, recruit and train key personnel;



•

the Company's reliance on third parties to manage some aspects of its business;



•

changes in the cost of raw materials, distribution services or labor, including federal and state minimum wage rates;

13

---

Table of Contents

•

the potential impact of national and international security concerns on the retail environment, including any possible military action, terrorist attacks or other hostilities;



•

the Company's reliance on foreign sources of production, including the disruption of imports by labor disputes, political instability, legal and regulatory matters, duties, taxes, other charges, local business practices, potential delays in shipping and related pricing impacts and political issues and fluctuation in currency and exchange rates;



•

the potential impact of natural disasters and health concerns relating to outbreaks of widespread diseases, particularly on manufacturing operations of the Company's vendors;



•

the ability of the Company's manufacturers to manufacture and deliver products in a timely manner while meeting its quality standards;



•

the Company's ability to successfully maintain its restructuring and cost reduction program;



•

the Company's ability to successfully integrate new or acquired businesses, including the Company's planned outlet expansion, into its existing business;



•

the Company's reliance on manufacturers to maintain ethical business practices;



•

the Company's ability to protect its trademarks and other intellectual property rights;



•

the Company's ability to maintain, and its reliance on, its information technology infrastructure;



•

the effects of government regulation;



•

the control of the Company by its sponsors and any potential change of ownership of those sponsors; and



•

risks and uncertainties as described in the Company's documents filed with the SEC, including its Annual Report on Form 10-K, as filed on April 6, 2010.

        The Company undertakes no obligation to revise the forward looking statements included in this Quarterly Report on Form 10-Q to reflect any future events or circumstances. The Company's actual results, performance or achievements could differ materially from the results expressed or implied by these forward looking statements.

Overview

        The Company is a leading specialty retailer of women's fashion apparel and accessories offering "NY Style" at Great Deals. The Company's proprietary branded New York & Company® merchandise is sold exclusively through its national network of retail stores and E-commerce store at www.nyandcompany.com. The target customers for the Company's merchandise are fashion-conscious, value-sensitive women between the ages of 25 and 45. As of July 31, 2010, the Company operated 581 stores in 43 states.

        Net sales for the three months ended July 31, 2010 decreased by 1.8% to $243.3 million, as compared to $247.8 million for the three months ended August 1, 2009. Comparable store sales decreased 1.8% for the three months ended July 31, 2010, as compared to a comparable store sales decrease of 16.4% for the three months ended August 1, 2009. Despite a modest decrease in comparable store sales during the three months ended July 31, 2010, the Company experienced a 1,370 basis point decrease in merchandise margins resulting from increased levels of promotional activity in order to drive sales and clear inventory in preparation for the fall season. The Company's net loss from continuing operations for the three months ended July 31, 2010 was $88.5 million, or

14

---

Table of Contents

$1.49 per diluted share, inclusive of a loss of $1.00 per diluted share attributable to the following pre-tax non-cash charges:

•

As previously announced, the Company is exiting an underperforming test accessories concept consisting of five stores and, as a result, incurred restructuring charges of $2.1 million, consisting of $2.0 million of non-cash charges related to asset impairments and the write-off of inventory, and $0.1 million of severance costs.



•

The Company performed an impairment analysis related to long-lived assets used in certain underperforming New York & Company stores. As a result, the Company recorded a non-cash impairment charge of $15.2 million. In addition, the Company recorded a non-cash charge of $0.5 million related to the disposal of certain information technology assets.



•

The Company recorded a $48.5 million non-cash charge to income tax expense, which includes a $48.0 million valuation allowance against the Company's deferred tax assets and a $0.5 million reserve for uncertain tax positions. In accordance with FASB ASC Topic 740, "Income Taxes" ("ASC 740"), the Company determined that it would record a full valuation allowance against its deferred tax assets after weighing the available evidence, which included in particular a three-year historical cumulative loss related to earnings before taxes.

        Capital spending for the six months ended July 31, 2010 was $9.3 million, as compared to $5.9 million for the six months ended August 1, 2009. The $9.3 million of capital spending represents $6.9 million related to the construction of 17 new stores, including 16 New York & Company Outlet stores, and the remodeling of two existing stores, and $2.4 million related to non-store capital projects. Capital spending during the six months ended August 1, 2009 represents $2.6 million related to the construction of six new stores and $3.4 million related to non-store capital projects.

        The Company views the retail apparel market as having two principal selling seasons: spring (first and second quarter) and fall (third and fourth quarter). The Company's business experiences seasonal fluctuations in net sales and operating income, with a significant portion of its operating income typically realized during the fourth quarter. Seasonal fluctuations also affect inventory levels. The Company must carry a significant amount of inventory, especially before the holiday season selling period in the fourth quarter.

General

        Net Sales.    Net sales consist of sales from comparable and non-comparable stores and the Company's E-commerce store. A store is included in the comparable store sales calculation after it has completed 13 full fiscal months of operation from the store's original opening date or once it has been reopened after remodeling. Beginning in February 2008, sales from the Company's E-commerce store are included in comparable store sales. Non-comparable store sales include stores which have not completed 13 full fiscal months of operations, sales from closed stores, and sales from stores closed or in temporary locations during periods of remodeling. In addition, in a year with 53 weeks, sales in the last week of the year are not included in determining comparable store sales. Net sales from the sale of merchandise at the Company's stores are recognized when the customer takes possession of the merchandise and the purchases are paid for, primarily with either cash or credit card. Net sales from the sale of merchandise at the Company's E-commerce store are recognized when the merchandise is shipped to the customer. A reserve is provided for projected merchandise returns based on prior experience.

        The Company issues gift cards which do not contain provisions for expiration or inactivity fees. The portion of the dollar value of gift cards that ultimately is not used by customers to make purchases is known as breakage. The Company estimates gift card breakage and records such amount as revenue as gift cards are redeemed. The Company's estimate of gift card breakage is based on analysis of

15

---

Table of Contents

historical redemption patterns, as well as the remaining balance of gift cards for which the Company believes the likelihood of redemption to be remote.

        Cost of Goods Sold, Buying and Occupancy Costs.    Cost of goods sold, buying and occupancy costs is comprised of direct inventory costs for merchandise sold, distribution, payroll and related costs for design, sourcing, production, merchandising, planning and allocation personnel, and store occupancy and related costs.

        Gross Profit.    Gross profit represents net sales less cost of goods sold, buying and occupancy costs.

        Selling, General and Administrative Expenses.    Selling, general and administrative expenses include selling, store management and corporate expenses, including payroll and employee benefits, employment taxes, management information systems, marketing, insurance, legal, store pre-opening and other corporate level expenses. Store pre-opening expenses include store level payroll, grand opening event marketing, travel, supplies and other store opening expenses.

Results of Operations

        The following tables summarize the Company's results of operations as a percentage of net sales and selected store operating data for the three and six months ended July 31, 2010 and August 1, 2009:

 

---

(1)

Net sales per average selling square foot is defined as net sales divided by the average of beginning and end of period selling square feet.

16

---

Table of Contents

(2)

Net sales per average store is defined as net sales divided by the average of beginning and end of period number of stores.

(3)

Average selling square footage per store is defined as end of period selling square feet divided by end of period number of stores.

Three Months Ended July 31, 2010 Compared to Three Months Ended August 1, 2009

        Net Sales.    Net sales for the three months ended July 31, 2010 decreased 1.8% to $243.3 million, as compared to $247.8 million for the three months ended August 1, 2009. The decrease in net sales is primarily driven by a 1.8% decrease in comparable store sales for the three months ended July 31, 2010, as compared to a decrease of 16.4% for the three months ended August 1, 2009. In the comparable store base, average dollar sales per transaction decreased by 5.4%, while the number of transactions per average store increased by 3.8%, as compared to the same period last year.

        Gross Profit.    Gross profit for the three months ended July 31, 2010 was $20.1 million, or 8.2% of net sales, as compared to $56.1 million, or 22.6% of net sales, for the three months ended August 1, 2009. The decrease in gross profit as a percentage of net sales during the three months ended July 31, 2010 is primarily due to a 1,370 basis point decrease in merchandise margins resulting from increased levels of promotional activity in order to drive sales and clear inventory in preparation for the fall season. In addition, the Company experienced a 70 basis point increase in buying and occupancy costs, primarily attributable to the loss of leverage due to negative comparable store sales.

        Selling, General and Administrative Expenses.    Selling, general and administrative expenses were $84.9 million, or 34.8% of net sales, for the three months ended July 31, 2010, as compared to $64.0 million, or 25.8% of net sales, for the three months ended August 1, 2009. The increase in selling, general and administrative expenses as a percentage of net sales is primarily a result of non-cash charges totaling $15.7 million, of which $15.2 million relates to the impairment of New York & Company store assets and $0.5 million relates to the disposal of certain information technology assets. In addition, the Company recorded charges totaling $2.1 million in connection with state sales and use tax and payroll tax audits during the three months ended July 31, 2010. Also contributing to the increase in selling, general and administrative expenses as a percentage of net sales during the three months ended July 31, 2010 is the 1.8% decrease in comparable store sales during the quarter.

        Restructuring charges.    As previously announced, the Company is exiting an underperforming test accessories concept consisting of five stores. In connection with the exit of this concept, during the three months ended July 31, 2010, the Company recorded $1.1 million of non-cash charges related to the impairment of store assets and $0.1 million of severance costs, which are reported in "Restructuring charges" on the condensed consolidated statements of operations. In addition, the Company recorded a $0.8 million charge related to the write-off of inventory, which is reported in "Cost of goods sold, buying and occupancy costs" on the condensed consolidated statements of operations.

17

---

Table of Contents

        Operating Loss.    For the reasons discussed above, operating loss for the three months ended July 31, 2010 was $66.0 million, or 27.1% of net sales, as compared to an operating loss of $7.9 million, or 3.2% of net sales, for the three months ended August 1, 2009.

        Interest Expense, Net.    Net interest expense was flat for the three months ended July 31, 2010, as compared to the three months ended August 1, 2009, at $0.2 million.

        Provision (Benefit) for Income Taxes.    The effective tax rate for the three months ended July 31, 2010 reflects a provision of 33.7%, as compared to a benefit of 40.2% for the three months ended August 1, 2009. The change in the effective tax rate is primarily the result of a $48.5 million non-cash charge recorded during the three months ended July 31, 2010, which includes a $48.0 million valuation allowance against the Company's deferred tax assets and a $0.5 million reserve for uncertain tax positions. For further information related to the deferred tax valuation allowance, please refer to Note 6, "Income Taxes" in the Notes to Condensed Consolidated Financial Statements appearing elsewhere in this Quarterly Report on Form 10-Q.

        Loss from Continuing Operations.    For the reasons discussed above, loss from continuing operations for the three months ended July 31, 2010 was $88.5 million, or 36.4% of net sales, as compared to a loss from continuing operations of $4.8 million, or 1.9% of net sales, for the three months ended August 1, 2009.

        Income from Discontinued Operations, Net of Taxes.    Income from discontinued operations, net of taxes, represents the Company's discontinued JasmineSola business.

Six Months Ended July 31, 2010 Compared to Six Months Ended August 1, 2009

        Net Sales.    Net sales for the six months ended July 31, 2010 decreased 0.1% to $480.3 million, as compared to $480.7 million for the six months ended August 1, 2009. Comparable store sales for the six months ended July 31, 2010 increased by 0.5%, as compared to a decrease of 15.7% for the six months ended August 1, 2009. In the comparable store base, average dollar sales per transaction decreased by 4.7%, while the number of transactions per average store increased by 5.5%, as compared to the same period last year.

        Gross Profit.    Gross profit for the six months ended July 31, 2010 was $78.6 million, or 16.4% of net sales, as compared to $114.9 million, or 23.9% of net sales, for the six months ended August 1, 2009. The decrease in gross profit as a percentage of net sales during the six months ended July 31, 2010 is due to a 810 basis point decrease in merchandise margins resulting from increased levels of promotional activity in order to drive sales and clear inventory in preparation for the fall season, partially offset by a 60 basis point decrease in buying and occupancy costs, primarily attributable to the increase in comparable store sales combined with savings recognized from the Company's restructuring and cost reduction program.

        Selling, General and Administrative Expenses.    Selling, general and administrative expenses were $152.1 million, or 31.7% of net sales, for the six months ended July 31, 2010, as compared to $131.4 million, or 27.3% of net sales, for the six months ended August 1, 2009. The increase in selling, general and administrative expenses as a percentage of net sales is primarily a result of non-cash charges totaling $15.7 million, of which $15.2 million relates to the impairment of New York & Company store assets and $0.5 million relates to the disposal of certain information technology assets. In addition, the Company recorded charges totaling $2.1 million in connection with state sales and use tax and payroll tax audits during the three months ended July 31, 2010.

18

---

Table of Contents

        Restructuring charges.    As previously announced, the Company is exiting an underperforming test accessories concept consisting of five stores. In connection with the exit of this concept, during the three months ended July 31, 2010, the Company recorded $1.1 million of non-cash charges related to the impairment of store assets and $0.1 million of severance costs, which is reported in "Restructuring charges" on the condensed consolidated statements of operations. In addition, the Company recorded a $0.8 million charge related to the write-off of inventory, which is reported in "Cost of goods sold, buying and occupancy costs" on the condensed consolidated statements of operations.

        Operating Loss.    For the reasons discussed above, operating loss for the six months ended July 31, 2010 was $74.7 million, or 15.6% of net sales, as compared to an operating loss of $16.4 million, or 3.4% of net sales, for the six months ended August 1, 2009.

        Interest Expense, Net.    Net interest expense was flat for the six months ended July 31, 2010, as compared to the six months ended August 1, 2009, at $0.4 million.

        Provision (Benefit) for Income Taxes.    The effective tax rate for the six months ended July 31, 2010 reflects a provision of 24.3%, as compared to a benefit of 42.2% for the six months ended August 1, 2009. The change in the effective tax rate is primarily the result of a $48.5 million non-cash charge recorded during the three months ended July 31, 2010, which includes a $48.0 million valuation allowance against the Company's deferred tax assets and a $0.5 million reserve for uncertain tax positions. For further information related to the deferred tax valuation allowance, please refer to Note 6, "Income Taxes" in the Notes to Condensed Consolidated Financial Statements appearing elsewhere in this Quarterly Report on Form 10-Q.

        Loss from Continuing Operations.    For the reasons discussed above, loss from continuing operations for the six months ended July 31, 2010 was $93.3 million, or 19.4% of net sales, as compared to a loss from continuing operations of $9.7 million, or 2.0% of net sales, for the six months ended August 1, 2009.

        Income from Discontinued Operations, Net of Taxes.    Income from discontinued operations, net of taxes, represents the Company's discontinued JasmineSola business.

Non-GAAP Financial Measure

        A reconciliation of the Company's GAAP to non-GAAP net loss from continuing operations and loss per diluted share for the three and six months ended July 31, 2010 is indicated below. The Company has provided non-GAAP adjusted net loss and loss per diluted share information for the three and six months ended July 31, 2010, in addition to providing financial results in accordance with GAAP. This information reflects, on a non-GAAP adjusted basis, the Company's net loss and loss per diluted share after excluding the effects of charges incurred in connection with the Company's restructuring and cost reduction program in addition to certain non-cash charges incurred during the three months ended July 31, 2010 that affect comparability to the prior year results. This non-GAAP financial information is provided to enhance the user's overall understanding of the Company's current financial performance. Specifically, the Company believes the non-GAAP adjusted results provide useful information to both management and investors by excluding expenses that the Company believes are not indicative of the Company's continuing operating results. The non-GAAP financial information should be considered in addition to, not as a substitute for or as being superior to, measures of financial performance prepared in accordance with GAAP.

19

---

Table of Contents

Reconciliation of GAAP to Non-GAAP Net Loss From Continuing Operations
and Loss Per Diluted Share

---

(a)

Presented net of $0.8 million of taxes, calculated at an effective tax rate of 40.2%.

(b)

Presented net of $6.3 million of taxes, calculated at an effective tax rate of 40.2%.

(c)

Included within the provision for income taxes.

(d)

Numbers may not add due to rounding.

Liquidity and Capital Resources

        The Company's primary uses of cash are to fund working capital, operating expenses, debt service and capital expenditures related primarily to the construction of new stores, remodeling of existing stores and development of the Company's information technology infrastructure. Historically, the Company has financed these requirements from internally generated cash flow. The Company intends to fund its ongoing capital and working capital requirements, as well as debt service obligations, primarily through cash flows from operations, supplemented by borrowings under its credit facilities, if needed. The Company is in compliance with all debt covenants as of July 31, 2010.

        The following tables contain information regarding the Company's liquidity and capital resources:

20

---

Table of Contents