**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,DC 20549**

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**FORM 10-Q**

**x**                              QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934

**forthe quarterly period ended May 5, 2007**

**OR**

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934

**forthe transition periodfrom                to                .**

**COMMISSIONFILE NUMBER: 1-32315**

**NEW YORK & COMPANY, INC.**

(Exact name of registrantas specified in its charter)

| **DELAWARE**                                                           |   | **33-1031445**                                              |
|------------------------------------------------------------------------|--------|-------------------------------------------------------------|
| (State of  incorporation)                                              |   | (I.R.S. Employer  Identification No.)                       |
| **450 West 33rd Street  5****th Floor  New York, New York 10001** |   | **(212) 884-2000**                                     |
| (Address of  Principal Executive Offices,  including Zip Code)         |   | (Registrant’s  Telephone Number,  Including Area Code) |

 

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

Indicateby check mark if the registrant is a large accelerated filer, an acceleratedfiler, or a non-accelerated filer. See definition of “accelerated filer” and “largeaccelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

| Large accelerated filer o | Accelerated filer x | Non-accelerated  filer o |
|--------------------------------|--------------------------|-------------------------------|

 

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

As of June 1, 2007, the registrant had58,343,382 shares of common stock outstanding.

 

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**TABLEOF CONTENTS**
| PART I. FINANCIAL  INFORMATION |   |
|-------------------------------------|--------|
| Item 1.                             |   | Financial  Statements | 1 |
| Item 2.                             |   | Management’s  Discussion and Analysis of Financial Condition and Results of Operations | 10 |
| Item 3.                             |   | Quantitative  and Qualitative Disclosures About Market Risk | 19 |
| Item 4.                             |   | Controls  and Procedures | 19 |
| PART II. OTHER INFORMATION     |   |
| Item 1.                             |   | Legal  Proceedings | 20 |
| Item 1A.                            |   | Risk Factors | 20 |
| Item 2.                             |   | Unregistered  Sales of Equity Securities and Use of Proceeds | 20 |
| Item 3.                             |   | Defaults Upon Senior Securities | 20 |
| Item 4.                             |   | Submission of Matters to a Vote of Security Holders | 20 |
| Item  5.                            |   | Other  Information | 20 |
| Item 6.                             |   | Exhibits | 20 |

 

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**PART I.FINANCIAL INFORMATION**

**ITEM1.**                FINANCIALSTATEMENTS

**NewYork & Company, Inc. and SubsidiariesCondensed Consolidated Statements of Income (Unaudited)**

| ** **                                                                    | ** ** | **Three months  ended  May 5, 2007**                            | ** ** | **Three months  ended  April 29, 2006** | ** ** |
|-------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                                                    | ** ** | **(Amounts in thousands,  except per share amounts)** | ** ** |
| Net sales                                                                     |       |                                                                           | $          | 283,962                                                |       |   |   | $ | 267,137 |   |   |
| Cost of goods  sold, buying and occupancy costs                               |       |                                                                           | 205,519    |                                                   |       |   | 188,034 |   |   |
| Gross profit                                                                  |       |                                                                           | 78,443     |                                                   |       |   | 79,103 |   |   |
| Selling, general  and administrative expenses                                 |       |                                                                           | 76,842     |                                                   |       |   | 68,484 |   |   |
| Operating income                                                              |       |                                                                           | 1,601      |                                                   |       |   | 10,619 |   |   |
| Interest expense,  net of interest income of $459 and $213, respectively |       |                                                                           | 261        |                                                   |       |   | 490 |   |   |
| Income before income taxes                                                    |       |                                                                           | 1,340      |                                                   |       |   | 10,129 |   |   |
| Provision for  income taxes                                                   |       |                                                                           | 538        |                                                   |       |   | 4,072 |   |   |
| Net income                                                                    |       |                                                                           | $          | 802                                                    |       |   |   | $ | 6,057 |   |   |
| Basic earnings per share                                                      |       |                                                                           | $          | 0.01                                                   |       |   |   | $ | 0.11 |   |   |
| Diluted earnings per share                                                    |       |                                                                           | $          | 0.01                                                   |       |   |   | $ | 0.10 |   |   |
| Weighted average  shares outstanding:                                         |       |                                                                           |       |                                                   |       |   |   |   |   |
| Basic shares of common stock                                                  |       |                                                                           | 57,805     |                                                   |       |   | 55,226 |   |   |
| Diluted shares of  common stock                                               |       |                                                                           | 60,869     |                                                   |       |   | 59,744 |   |   |

 

See accompanying notes.

1

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**New York &Company, Inc. and SubsidiariesCondensed Consolidated Balance Sheets**

| ** **                                                                                                                                                                                                           | ** ** | **May 5,  2007**                                                          | ** ** | **February 3,  2007** | ** ** | **April 29,  2006** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------|------------|----------------------------|------------|--------------------------|------------|
| ** **                                                                                                                                                                                                           | ** ** | **(Unaudited)**                                                                | ** ** | **(Audited)**              | ** ** | **(Unaudited)**          | ** ** |
| ** **                                                                                                                                                                                                           | ** ** | **(Amounts in thousands,  except per share amounts)** | ** ** |
| **Assets**                                                                                                                                                                                                           | ** ** |                                                                           | ** ** | ** **                 |       |                     | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Current assets:                                                                                                                                                                                                      |       |                                                                           |       |                       |       |                     |       |   |   |   |   |   |   |
| Cash and cash equivalents                                                                                                                                                                                            |       |                                                                           | $          | 36,591                     |       |                     |       | $ | 68,064 |   |   |   | $ | 26,897 |   |   |
| Accounts receivable                                                                                                                                                                                                  |       |                                                                           | 23,410     |                       |       |                     | 14,270     |   |   |   | 22,544 |   |   |
| Inventories, net                                                                                                                                                                                                     |       |                                                                           | 130,663    |                       |       |                     | 110,088    |   |   |   | 130,158 |   |   |
| Prepaid expenses                                                                                                                                                                                                     |       |                                                                           | 20,627     |                       |       |                     | 20,351     |   |   |   | 16,874 |   |   |
| Other current assets                                                                                                                                                                                                 |       |                                                                           | 2,651      |                       |       |                     | 2,089      |   |   |   | 2,454 |   |   |
| Total current  assets                                                                                                                                                                                                |       |                                                                           | 213,942    |                       |       |                     | 214,862    |   |   |   | 198,927 |   |   |
| Property and  equipment, net                                                                                                                                                                                         |       |                                                                           | 212,783    |                       |       |                     | 210,163    |   |   |   | 169,161 |   |   |
| Goodwill                                                                                                                                                                                                             |       |                                                                           | 11,088     |                       |       |                     | 11,088     |   |   |   | 9,756 |   |   |
| Intangible assets                                                                                                                                                                                                    |       |                                                                           | 32,053     |                       |       |                     | 32,053     |   |   |   | 32,053 |   |   |
| Other assets                                                                                                                                                                                                         |       |                                                                           | 1,502      |                       |       |                     | 1,633      |   |   |   | 2,106 |   |   |
| Total assets                                                                                                                                                                                                         |       |                                                                           | $          | 471,368                    |       |                     |       | $ | 469,799 |   |   |   | $ | 412,003 |   |   |
| **Liabilities  and stockholders’ equity**                                                                                                                                                                       | ** ** |                                                                           | ** ** | ** **                 |       |                     | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Current liabilities:                                                                                                                                                                                                 |       |                                                                           |       |                       |       |                     |       |   |   |   |   |   |   |
| Current portion, long-term debt                                                                                                                                                                                      |       |                                                                           | $          | 6,000                      |       |                     |       | $ | 6,000 |   |   |   | $ | 6,000 |   |   |
| Accounts payable                                                                                                                                                                                                     |       |                                                                           | 76,141     |                       |       |                     | 66,631     |   |   |   | 85,930 |   |   |
| Accrued expenses                                                                                                                                                                                                     |       |                                                                           | 54,330     |                       |       |                     | 61,982     |   |   |   | 50,680 |   |   |
| Income taxes payable                                                                                                                                                                                                 |       |                                                                           | 2,478      |                       |       |                     | 6,391      |   |   |   | — |   |   |
| Deferred income taxes                                                                                                                                                                                                |       |                                                                           | 1,016      |                       |       |                     | 3,894      |   |   |   | 1,740 |   |   |
| Total current  liabilities                                                                                                                                                                                           |       |                                                                           | 139,965    |                       |       |                     | 144,898    |   |   |   | 144,350 |   |   |
| Long-term  debt, net of current portion                                                                                                                                                                              |       |                                                                           | 24,000     |                       |       |                     | 25,500     |   |   |   | 30,000 |   |   |
| Deferred income  taxes                                                                                                                                                                                               |       |                                                                           | 2,565      |                       |       |                     | 2,990      |   |   |   | 4,133 |   |   |
| Deferred rent                                                                                                                                                                                                        |       |                                                                           | 61,311     |                       |       |                     | 55,254     |   |   |   | 41,613 |   |   |
| Other liabilities                                                                                                                                                                                                    |       |                                                                           | 613        |                       |       |                     | 358        |   |   |   | 615 |   |   |
| Total liabilities                                                                                                                                                                                                    |       |                                                                           | 228,454    |                       |       |                     | 229,000    |   |   |   | 220,711 |   |   |
| Stockholders’  equity:                                                                                                                                                                                          |       |                                                                           |       |                       |       |                     |       |   |   |   |   |   |   |
| Common stock, voting, par value $0.001; 300,000  shares authorized; 58,043, 57,538 and 55,394 shares issued and outstanding at  May 5, 2007, February 3, 2007, and April 29, 2006,  respectively |       |                                                                           | 58         |                       |       |                     | 57         |   |   |   | 55 |   |   |
| Additional paid-in capital                                                                                                                                                                                           |       |                                                                           | 145,429    |                       |       |                     | 141,804    |   |   |   | 132,675 |   |   |
| Retained earnings                                                                                                                                                                                                    |       |                                                                           | 97,633     |                       |       |                     | 99,144     |   |   |   | 59,031 |   |   |
| Accumulated other comprehensive loss                                                                                                                                                                                 |       |                                                                           | (206       | )                          |       |                     | (206       | ) |   |   | (469 | ) |   |
| Total  stockholders’ equity                                                                                                                                                                                     |       |                                                                           | 242,914    |                       |       |                     | 240,799    |   |   |   | 191,292 |   |   |
| Total liabilities and  stockholders’ equity                                                                                                                                                                     |       |                                                                           | $          | 471,368                    |       |                     |       | $ | 469,799 |   |   |   | $ | 412,003 |   |   |

 

See accompanying notes.

2

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**New York &Company, Inc. and SubsidiariesCondensed Consolidated Statements of Cash Flows (Unaudited)**

| ** **                                                                     | ** ** | **Three months  ended  May 5, 2007** | ** ** | **Three months  ended  April 29, 2006** | ** ** |
|--------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                                                     | ** ** | **(Amounts in thousands)**                | ** ** |
| **Operating activities**                                                       |       |                                                |       |                                                   |       |   |   |   |   |
| Net income                                                                     |       |                                                | $          | 802                                                    |       |   |   | $ | 6,057 |   |   |
| Adjustments to reconcile  net income to net cash used in operating activities: |       |                                                |       |                                                   |       |   |   |   |   |
| Depreciation and amortization                                                  |       |                                                | 9,050      |                                                   |       |   | 7,676 |   |   |
| Amortization of deferred financing costs                                       |       |                                                | 69         |                                                   |       |   | 73 |   |   |
| Share-based compensation expense                                               |       |                                                | 442        |                                                   |       |   | 622 |   |   |
| Deferred income taxes                                                          |       |                                                | (3,303     | )                                                      |       |   | (1,866 | ) |   |
| Changes in  operating assets and liabilities:                                  |       |                                                |       |                                                   |       |   |   |   |   |
| Accounts receivable                                                            |       |                                                | (9,140     | )                                                      |       |   | (9,257 | ) |   |
| Inventories, net                                                               |       |                                                | (20,575    | )                                                      |       |   | (20,502 | ) |   |
| Prepaid expenses                                                               |       |                                                | (276       | )                                                      |       |   | 1,896 |   |   |
| Accounts payable                                                               |       |                                                | 9,510      |                                                   |       |   | (5,050 | ) |   |
| Accrued expenses                                                               |       |                                                | (7,643     | )                                                      |       |   | (4,231 | ) |   |
| Income taxes payable                                                           |       |                                                | (6,226     | )                                                      |       |   | — |   |   |
| Deferred rent                                                                  |       |                                                | 6,057      |                                                   |       |   | 6,499 |   |   |
| Other assets and liabilities                                                   |       |                                                | (276       | )                                                      |       |   | (1,093 | ) |   |
| Net cash used in  operating activities                                         |       |                                                | (21,509    | )                                                      |       |   | (19,176 | ) |   |
| **Investing  activities**                                                      |       |                                                |       |                                                   |       |   |   |   |   |
| Capital  expenditures                                                          |       |                                                | (11,612    | )                                                      |       |   | (17,370 | ) |   |
| Net cash used in  investing activities                                         |       |                                                | (11,612    | )                                                      |       |   | (17,370 | ) |   |
| **Financing  activities**                                                      |       |                                                |       |                                                   |       |   |   |   |   |
| Net proceeds from  public offering                                             |       |                                                | —     |                                                   |       |   | 2,294 |   |   |
| Payment of  offering costs related to public offering                          |       |                                                | —     |                                                   |       |   | (453 | ) |   |
| Repayment of debt                                                              |       |                                                | (1,500     | )                                                      |       |   | (1,500 | ) |   |
| Proceeds from  exercise of stock options                                       |       |                                                | 123        |                                                   |       |   | 663 |   |   |
| Excess tax  benefit from exercise of stock options                             |       |                                                | 3,061      |                                                   |       |   | 5,003 |   |   |
| Other                                                                          |       |                                                | (36        | )                                                      |       |   | — |   |   |
| Net cash provided  by financing activities                                     |       |                                                | 1,648      |                                                   |       |   | 6,007 |   |   |
| Net decrease in  cash and cash equivalents                                     |       |                                                | (31,473    | )                                                      |       |   | (30,539 | ) |   |
| Cash and cash  equivalents at beginning of period                              |       |                                                | 68,064     |                                                   |       |   | 57,436 |   |   |
| Cash and cash  equivalents at end of period                                    |       |                                                | $          | 36,591                                                 |       |   |   | $ | 26,897 |   |   |

 

See accompanying notes.

3

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**New York &Company, Inc. and SubsidiariesCondensed Consolidated Statement of Stockholders’ Equity(Unaudited)**

| ** **                                         | ** ** | ** **                           | ** ** | ** **  | ** ** | ** **     | ** ** | ** **        | ** ** | **Accumulated** | ** ** | ** ** | ** ** |
|----------------------------------------------------|------------|--------------------------------------|------------|-------------|------------|----------------|------------|-------------------|------------|-----------------|------------|------------|------------|
| ** **                                         | ** ** | ** **                           | ** ** | ** **  | ** ** | **Additional** | ** ** | ** **        | ** ** | **Other**       | ** ** | ** ** | ** ** |
| ** **                                         | ** ** | **Common Stock**                | ** ** | **Paid-in** | ** ** | **Retained**   | ** ** | **Comprehensive** | ** ** | ** **      | ** ** |
| ** **                                         | ** ** | **Shares**                           | ** ** | **Amount**  | ** ** | **Capital**    | ** ** | **Earnings**      | ** ** | **Loss**        | ** ** | **Total**  | ** ** |
| ** **                                         | ** ** | **(Amounts in thousands)** | ** ** |
| Balance at  February 3, 2007                  |       | 57,538                               |       |        | $          | 57             |       |              | $          | 141,804         |       | $          | 99,144     |   |   | $ | (206 | ) |   | $ | 240,799 |   |
| Stock options  exercised                           |       | 505                                  |       |        | 1          |           |       | 122               |       | —          |       |       | —     |   |   | 123 |   |
| Excess tax  benefit from exercise of stock options |       | —                               |       |        | —     |           |       | 3,061             |       | —          |       |       | —     |   |   | 3,061 |   |
| Share-based  compensation expense                  |       | —                               |       |        | —     |           |       | 442               |       | —          |       |       | —     |   |   | 442 |   |
| Cumulative effect  of adoption of FIN 48      |       | —                               |       |        | —     |           |       | —            |       | (2,313          | )          |       | —     |   |   | (2,313 | ) |
| Net income                                         |       | —                               |       |        | —     |           |       | —            |       | 802             |       |       | —     |   |   | 802 |   |
| Balance at May 5,  2007                       |       | 58,043                               |       |        | $          | 58             |       |              | $          | 145,429         |       | $          | 97,633     |   |   | $ | (206 | ) |   | $ | 242,914 |   |

 

See accompanying notes.

4

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**New York & Company, Inc.Notes to Condensed Consolidated Financial StatementsMay 5, 2007(Unaudited)**

**1.**                 Organization andBasis of Presentation

New York & Company, Inc. (together withits subsidiaries, collectively the “Company”) is a leading specialty retailerof fashion-oriented, moderately-priced women’s apparel. The Company designs andsources its proprietary branded *New York &CompanyTM* merchandise sold exclusively through its national networkof retail stores and on-line at *www.nyandcompany.com*.The target customers for the Company’s *NewYork & CompanyTM* merchandise are fashion-conscious,value-sensitive women between the ages of 25 and 45. On July 19,2005, the Company acquired Jasmine Company, Inc. (“JasmineSola”), aBoston-based, privately held women’s retailer of upscale and contemporaryapparel, footwear and accessories sold through its chain of *JasmineSolaTM*branded retail stores. As of May 5, 2007, the Company operated 569 retailstores in 44 states, including 24 JasmineSola stores. Trademarksreferenced in this Quarterly Report on Form 10-Q appear in italictype and are the property of the Company.

The accompanying condensed consolidated financialstatements include the accounts for New York & Company, Inc. andall of its subsidiaries, including Lerner New York Holding, Inc. (“LernerHolding”); Lerner New York, Inc.; Lernco, Inc.; Nevada ReceivableFactoring, Inc. and JasmineSola. On a stand alone basis, without theconsolidation of its subsidiaries, New York & Company, Inc. hasno significant independent assets or operations. All significant intercompanybalances and transactions have been eliminated in consolidation. In the opinionof management, the accompanying consolidated financial statements reflect alladjustments, which are of a normal recurring nature, necessary to presentfairly the financial condition, results of operations and cash flows for theinterim periods. Certain amounts in the prior period have been reclassified toconform to the current period presentation.

The condensed consolidated financial statements as of May 5,2007 and April 29, 2006 and for the thirteen weeks (“threemonths”) ended May 5, 2007 and April 29, 2006 are unaudited andare presented pursuant to the rules and regulations of the United StatesSecurities and Exchange Commission (“SEC”). Accordingly, these unauditedconsolidated financial statements should be read in conjunction with the auditedconsolidated financial statements and notes thereto for the 53-weekfiscal year ended February 3, 2007 (“fiscal year 2006”), which were filedwith the Company’s Annual Report on Form 10-K with the SEC on April 6,2007. The 52-week fiscal year ending February 2, 2008 is referred toherein as “fiscal year 2007.” The Company’s fiscal year is a 52 or 53 week yearthat ends on the Saturday closest to January 31.

Due to seasonal variationsin the retail industry, the results of operations for any interim period arenot necessarily indicative of the results expected for the full fiscal year.

**2.**                 Public Offeringof Common Stock

On January 25, 2006, the Company completed apublic offering of 8,050,000 shares of common stock, including the underwriters’over-allotment option, of which 130,000 shares were offered by the Company and7,920,000 shares were offered by certain selling stockholders at a price to thepublic of $18.50 per share. Upon consummation of the public offering on January 31,2006, net proceeds of $2.3 million and $139.8 million weredistributed to the Company and selling stockholders, respectively.

The net proceeds receivedby the Company were used to pay the fees and expenses of the offering, as wellas for general corporate purposes.

5

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**3.**                 Acquisition

On July 19, 2005, the Company entered into aStock Purchase Agreement to acquire all of the outstanding common stock ofJasmineSola for $22.5 million in cash and 350,000 shares of New York &Company, Inc. common stock, $0.001 par value, valued at $8.1 millionbased upon the closing stock price of New York & Company, Inc. onJuly 19, 2005. In addition, the Company will issue up to200,000 shares of its common stock as additional consideration for theacquisition of JasmineSola contingent upon the achievement of certain growthtargets over the three full fiscal years, and on a cumulative basis, followingthe acquisition. No shares were issued for fiscal year 2006. These contingentshares, if issued, will be recorded as an adjustment to the purchase price and goodwill.

The acquisition was accounted for under the purchasemethod of accounting. The purchase price allocation resulted in goodwill of$11.1 million and indefinite lived intangible assets related to trademarksof $17.2 million.

In April 2007, theCompany completed the arbitration proceeding related to the JasmineSola StockPurchase Agreement and as a result recorded $3.3 million of charges in selling,general and administrative expenses, which consists primarily of legal costsrelated to the arbitration. The arbitration had no impact on the purchase priceor goodwill.

**4.**                 Earnings PerShare

Basicearnings per share are computed by dividing net income by the weighted averagenumber of shares of common stock outstanding for the period. Diluted earningsper share are calculated based on the weighted average number of shares ofcommon stock outstanding plus the dilutive effect of stock options as if theywere exercised and unvested restricted stock as if it were vested. Areconciliation between basic and diluted earnings per share is as follows:

| ** **                                        | ** ** | **Three months  ended  May 5, 2007**                            | ** ** | **Three months  ended  April 29, 2006** | ** ** |
|---------------------------------------------------|------------|--------------------------------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                        | ** ** | **(Amounts in thousands,  except per share amounts)** | ** ** |
| Net income                                        |       |                                                                           | $          | 802                                                    |       |   |   | $ | 6,057 |   |   |
| *Basic  EPS*                                      |       |                                                                           |       |                                                   |       |   |   |   |   |
| Weighted average shares  outstanding:             |       |                                                                           |       |                                                   |       |   |   |   |   |
| Basic shares of common stock                      |       |                                                                           | 57,805     |                                                   |       |   | 55,226 |   |   |
| Basic EPS                                         |       |                                                                           | $          | 0.01                                                   |       |   |   | $ | 0.11 |   |   |
| *Diluted  EPS*                                    |       |                                                                           |       |                                                   |       |   |   |   |   |
| Weighted average shares  outstanding:             |       |                                                                           |       |                                                   |       |   |   |   |   |
| Basic shares of common stock                      |       |                                                                           | 57,805     |                                                   |       |   | 55,226 |   |   |
| Plus impact of stock options and restricted stock |       |                                                                           | 3,064      |                                                   |       |   | 4,518 |   |   |
| Diluted shares of common stock                    |       |                                                                           | 60,869     |                                                   |       |   | 59,744 |   |   |
| Diluted EPS                                       |       |                                                                           | $          | 0.01                                                   |       |   |   | $ | 0.10 |   |   |

 

The calculation of dilutedearnings per share for the three months ended May 5, 2007 and April 29,2006 exclude options to purchase 993,585 and 823,836 shares,respectively, due to their antidilutive effect.

**5.**                 Share-BasedCompensation

In December 2004, the Financial AccountingStandards Board (“FASB”) published Statement of Financial Accounting Standards(“SFAS”) No. 123 (Revised 2004), “Share-Based Payment” (“SFAS 123-R”).SFAS 123-R retains certain of the requirements of the original SFAS No. 123,

6

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**5.**                 Share-BasedCompensation (Continued)

“Accounting for Stock-BasedCompensation” (“SFAS 123”) and requires that the cost resulting from allshare-based payment transactions be treated as compensation andrecognized in the consolidated financial statements. The Company adopted SFAS123-R in December 2004, utilizing the modified prospective method.Prior to the Company’s adoption of SFAS 123-R, the Company followedSFAS 123 and treated all forms of share-based payments as compensationrecognized in the consolidated statement of income. Therefore, the adoption ofSFAS 123-R did not have a material impact on the Company’sconsolidated financial statements.

In connection with the consummation of the publicoffering of common stock on January 31, 2006, BSMB/NYCG, LLC, an affiliateof Bear Stearns Merchant Banking, LLC and the controlling stockholder of theCompany, realized a cash return in excess of 3.0 times its investment in theCompany; at which point, 2,777,311 outstanding stock options vested inaccordance with the terms of the respective stock option agreements.

The Company recorded share-based compensation expensein the amount of $0.4 million and $0.6 million for the three months ended May 5,2007 and April 29, 2006, respectively. Included in the$0.6 million of share-based compensation expense for the three monthsended April 29, 2006 is $0.2 million of expense related to the2,777,311 stock options that vested on January 31, 2006.

The Company issued 504,992shares of common stock upon exercise of stock options during the three monthsended May 5, 2007.

**6.**                 Pension Plan

The Company sponsors a single-employer definedbenefit pension plan (the “plan”) covering substantially all union employees.Employees covered by collective bargaining agreements are primarilynon-management store associates, representing approximately 10% of the Company’stotal employees. The Company’s collective bargaining agreement with the Local1102 unit of the Retail, Wholesale and Department Store Union (RWDSU) AFL-CIOis set to expire on June 30, 2007 and is currently underrenegotiation.

Theplan provides retirement benefits for union employees, consisting ofnon-management store associates, who have attained the age of 18 andcompleted 425 hours of service in the twelve-month period followingthe 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 theamount necessary to provide for benefits based on accrued service. The Companydoes not anticipate the need for a material contribution to the plan for theremainder of the current fiscal year. Net periodic benefit cost includes the followingcomponents:

| ** **                      | ** ** | **Three months  ended  May 5, 2007** | ** ** | **Three months  ended  April 29, 2006** | ** ** |
|---------------------------------|------------|-----------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                      | ** ** | **(Amounts in thousands)**                | ** ** |
| Service cost                    |       |                                                | $          | 90                                                     |       |   |   | $ | 67 |   |   |
| Interest cost                   |       |                                                | 137        |                                                   |       |   | 135 |   |   |
| Expected return  on plan assets |       |                                                | (179       | )                                                      |       |   | (180 | ) |   |
| Net periodic benefit cost       |       |                                                | $          | 48                                                     |       |   |   | $ | 22 |   |   |

 

**7.**                 Income Taxes

The effective tax rate for the three months ended May 5,2007 and April 29, 2006 was 40.1% and 40.2%, respectively.

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**7.**                 IncomeTaxes (Continued)

The Company files U.S. federal income tax returns andincome tax returns in various state jurisdictions. Effective February 4,2007, the Company adopted FASB Interpretation No. 48, “Accounting forUncertainty in Income Taxes—an interpretation of FASB Statement No. 109.”In accordance with the Interpretation, the Company recognized acumulative-effect adjustment of $2.3 million, increasing its liability forunrecognized tax benefits, interest, and penalties and reducing the February 4,2007 balance of retained earnings. At February 4, 2007, the Company had$4.5 million in unrecognized tax benefits, including interest and penalties, allof which would impact the Company’s effective tax rate if recognized. TheCompany does not anticipate any significant increases or decreases to thebalance of unrecognized tax benefits during the next twelve months.

The Company recognizes accrued interest and penaltiesrelated to unrecognized tax benefits in income tax expense. At February 4,2007, the Company had accrued $1.4 million and $0.6 million for the potentialpayment of interest and penalties, respectively. As of February 4, 2007,the Company is subject to U.S. federal income tax examinations and state andlocal income tax examinations for the tax years 2003 through 2006.

There were no significantchanges to any of these amounts during the three months ended May 5, 2007.

**8.**                 Long-Term Debtand Credit Facilities

The Company’s credit facilities consist of a$37.5 million term loan facility (“January 4, 2006 term loan”)and a $90.0 million revolving credit facility (which includes asub-facility available for issuance of letters of credit of up to $75.0million), both having a maturity date of March 17, 2009.

As of May 5, 2007, the Company had availabilityunder its revolving credit facility of $66.4 million, net of letters ofcredit outstanding of $8.9 million, as compared to availability of$62.0 million, net of letters of credit outstanding of $9.4 million,as of April 29, 2006.

The revolving loans under the credit facilities bearinterest, at the Company’s option, either at a floating rate equal to theEurodollar rate plus a margin of between 1.00% and 2.00% per year, dependingupon the Company’s financial performance, or the Prime rate. The Company paysthe lenders under the revolving credit facility a monthly fee on outstandingletters of credit at a rate of between 1.00% and 1.50% per year, depending uponthe Company’s financial performance, plus a monthly fee on a proportion of theunused commitments under that facility at a rate of between 0.25% and 0.50% peryear, depending upon the Company’s financial performance. The term loan bearsinterest 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 solong as such default were to continue, at the option of the agent or lenders,interest on the revolving loans may increase to 4.00% per year above theEurodollar rate for Eurodollar rate loans and 2.00% per year above the Primerate for all Prime rate loans, and interest on the term loan may increase tothe Eurodollar rate plus 4.50% per year.

The Company’s credit facilities contain certaincovenants, including restrictions on the Company’s ability to pay dividends onits common stock, incur additional indebtedness and to prepay, redeem orrepurchase other debt. Subject to such restrictions, the Company may incur moredebt for working capital, capital expenditures, acquisitions and for otherpurposes. The terms of the Company’s credit facilities also subject it tocertain maintenance covenants in the event its borrowing availability under itsrevolving credit facility, plus cash on-hand, falls below $40.0 million.These covenants include maintaining a minimum trailing twelve-month EBITDA (asdefined in its amended and restated credit agreement) and a maximum leverageratio. This ratio and the calculation of EBITDA under the Company’s amended andrestated credit agreement are not necessarily comparable to other similarlytitled ratios and measurements of other 

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**8.**                 Long-TermDebt and Credit Facilities (Continued)

companies due toinconsistencies in the method of calculation. In addition, in the event thatthe Company’s borrowing availability under its revolving credit facility, pluscash on-hand, falls below $50.0 million and it fails to maintain aminimum trailing twelve-month EBITDA, then the outstanding principal amount ofthe $37.5 million term loan must be prepaid down to $25.0 million, subject tocertain restrictions. The Company is currently in compliance with the financialcovenants referred to above.

The lenders have beengranted a pledge of the common stock of Lerner Holding and certain of itssubsidiaries, and a first priority security interest in substantially all othertangible and intangible assets of New York & Company, Inc. andcertain of its subsidiaries, as collateral for the Company’s obligations underthe credit facilities. In addition, New York & Company, Inc. andcertain of its subsidiaries have fully and unconditionally guaranteed thecredit facilities, and such guarantees are joint and several.

**9.**                 New AccountingPronouncements

In June 2006, the FASB issued Interpretation No. 48,“Accounting for Uncertainty in Income Taxes—an interpretation of FASB StatementNo. 109.” This Interpretation clarifies the accounting for uncertain taxpositions recognized in a company’s financial statements in accordance with theprovisions of FASB Statement No. 109, “Accounting for Income Taxes.” ThisInterpretation prescribes a recognition threshold and measurement attribute forthe financial statement recognition and measurement of a tax position taken orexpected to be taken in a tax return. This Interpretation also providesguidance on derecognition of uncertain positions, financial statementclassification, accounting for interest and penalties, accounting in interimperiods, disclosure, and transition. This Interpretation is effective forfiscal years beginning after December 15, 2006. The Company adopted theprovisions of this Interpretation on February 4, 2007, as describedfurther in footnote 7, “Income Taxes” in these Notes to Condensed ConsolidatedFinancial Statements.

In September 2006, the FASB issued SFAS No. 157,“Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 establishesa common definition for fair value to be applied to US GAAP guidance requiringthe use of fair value, establishes a framework for measuring fair value, andexpands the disclosure about such fair value measurements. SFAS No. 157 iseffective for fiscal years beginning after November 15, 2007, and interimperiods within those fiscal years. The Company is currently evaluating theimpact, if any, that the adoption of this Statement will have on its financialposition and results of operations.

In September 2006, the FASB issued SFAS No. 158,“Employers’ Accounting for Defined Benefit Pension and Other PostretirementPlans, an amendment of FASB statements No. 87, 88, 106, and 132(R)” (“SFASNo. 158”). SFAS No. 158 requires recognition of the overfunded orunderfunded status of defined benefit postretirement plans as an asset orliability in the statement of financial position and requires companies torecognize changes in that funded status in comprehensive income in the year inwhich the changes occur. SFAS No. 158 also requires measurement of thefunded status of a plan as of the date of the statement of financial position.SFAS No. 158 is effective for recognition of the funded status of benefitplans for fiscal years ending after December 15, 2006 and is effective forthe measurement date provisions for fiscal years ending after December 15,2008. The adoption of the recognition provisions of this Statement at February 3,2007 did not have an impact on the Company’s financial position and results ofoperations. The Company does not anticipate that the adoption of themeasurement date provisions of this Statement will have a material impact onits financial position and results of operations.

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**ITEM2.**                MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

**SPECIAL NOTEREGARDING FORWARD-LOOKING STATEMENTS AND RISK FACTORS**

**(CautionaryStatements Under the Private Securities Litigation Reform Act of 1995)**

This QuarterlyReport on Form 10-Q includes forward-looking statements.Certain matters discussed in “Item 2. Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” and other sections of thisQuarterly Report on Form 10-Q are forward-looking statementsintended to qualify for safe harbors from liability established by the PrivateSecurities Litigation Reform Act of 1995. Some of these statements can beidentified by terms and phrases such as “anticipate,” “believe,” “intend,” “estimate,”“expect,” “continue,” “could,” “may,” “plan,” “project,” “predict” and similarexpressions and include references to assumptions that the Company believes arereasonable and relate to its future prospects, developments and businessstrategies. Factors that could cause the Company’s actual results to differmaterially 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 QuarterlyReport on Form 10-Q and:

·       theCompany’s ability to open and operate stores successfully;

·       seasonalfluctuations in the Company’s business;

·       theCompany’s ability to anticipate and respond to fashion trends and launch newproduct lines successfully;

·       generaleconomic conditions, consumer confidence and spending patterns;

·       theCompany’s dependence on mall traffic for its sales;

·       thesusceptibility of the Company’s business to extreme and/or unseasonable weatherconditions;

·       theCompany’s ability to retain and recruit key personnel;

·       theCompany’s reliance on third parties to manage some aspects of its business;

·       changesin the cost of raw materials, distribution services or labor, including federaland state minimum wage rates;

·       theCompany’s reliance on foreign sources of production;

·       thepotential impact of natural disasters and health concerns relating to outbreaksof widespread diseases, particularly on manufacturing operations of the Company’svendors;

·       theability of the Company’s manufacturers to manufacture and deliver products in atimely manner while meeting its quality standards;

·       theCompany’s ability to successfully integrate acquired businesses into itsexisting business;

·       theCompany’s reliance on manufacturers to maintain ethical business practices;

·       theCompany’s ability to protect its trademarks and other intellectual propertyrights;

·       theCompany’s ability to maintain, and its reliance on, its information systemsinfrastructure;

·       theCompany’s dependence on the success of its brand;

·       competitionin the Company’s market, including promotional and pricing competition;

·       theCompany’s reliance on the effective use of customer information;

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·       theeffects of government regulation;

·       thecontrol of the Company by its sponsors; and

·       risksand uncertainties as described in the Company’s documents filed with the SEC,including its Annual Report on Form 10-K, as filed on April 6,2007.

The Company undertakes noobligation to revise the forward-looking statements included in thisQuarterly Report on Form 10-Q to reflect any future events orcircumstances. The Company’s actual results, performance or achievements coulddiffer materially from the results expressed or implied by these forward-lookingstatements.

**Overview**

The Company is a leading specialty retailer offashion-oriented, moderately-priced women’s apparel. The Company designs andsources its proprietary branded *New York &Company*merchandise sold exclusively through its national network ofNew York & Company retail stores and on-line at *www.nyandcompany.com*.The target customers for the Company’s *NewYork & Company* merchandiseare fashion-conscious, value-sensitive women between the ages of 25 and45. On July 19, 2005, the Company acquired JasmineSola, a Boston-based,privately held women’s retailer of upscale and contemporary apparel, footwearand accessories sold through its chain of *JasmineSola*branded retail stores. As of May 5, 2007, the Company operated 569 retailstores in 44 states, including 24 JasmineSola stores.

The Company views the retail apparel market as havingtwo principal selling seasons: spring (first and second quarter) and fall(third and fourth quarter). The Company’s business experiences seasonalfluctuations in net sales and operating income, with a significant portion ofits operating income typically realized during fourth quarter. Seasonalfluctuations also affect inventory levels. The Company must carry a significantamount of inventory, especially before the holiday season selling period.

Net sales for the three months ended May 5,2007 increased 6.3% to $284.0 million, as compared to$267.1 million for the three months ended April 29, 2006. Comparablestore sales decreased 1.2% for the three months ended May 5, 2007, ascompared to a comparable store sales decrease of 9.2% for the three monthsended April 29, 2006. Net sales per average selling square foot for thethree months ended May 5, 2007 increased 3.7% to $85, as compared to$82 for the three months ended April 29, 2006. Net income for thethree months ended May 5, 2007 decreased to $0.8 million, or$0.01 per diluted share, as compared to $6.1 million, or$0.10 per diluted share, for the three months ended April 29, 2006.For a discussion of the more significant factors impacting these results, see “Resultsof Operations” below.

Capital spending for the three months ended May 5,2007 was $11.6 million, as compared to $17.4 million for the threemonths ended April 29, 2006. The $11.6 million of capital spendingrepresents $10.7 million primarily related to the construction of newstores and $0.9 million related to non-store capital projects, whichprincipally represent information technology enhancements. During the threemonths ended May 5, 2007, the Company opened 11 new stores and closedtwo stores, ending the period operating 569 stores, as compared to530 stores as of April 29, 2006. During the three months ended April 29,2006, the Company opened 14 stores and remodeled five stores. Total sellingsquare footage as of May 5, 2007 was 3.352 million, as comparedto 3.282 million as of April 29, 2006.

The Company’s balance sheet at May 5,2007 included $36.6 million in cash and cash equivalents and$74.0 million of working capital, as compared to $26.9 million incash and cash equivalents and $54.6 million of working capital at April 29,2006. At May 5, 2007, the Company’s inventory was $130.7 million, ascompared to $130.2 million of inventory at April 29, 2006.

The Company’s business isimpacted by economic conditions which affect the level of consumer spending onthe merchandise the Company offers. These economic factors include interestrates, economic 

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growth, wagerates, unemployment levels, energy prices, consumer confidence and consumerspending, among others. Consumer preferences and economic conditions may changefrom time to time in the markets in which the Company operates and maynegatively impact the Company’s net sales and profitability. As these economicconditions change, there can be no assurance that future trends andfluctuations in economic factors will not have a material adverse effect on theCompany’s financial condition and results of operations. The Company’s strategyis to focus on its customers, current fashion trends, merchandise testing,value pricing and responsive inventory management to enable it to react tochanges as they occur.

***General***

*NetSales.**  *Net sales consist of sales from comparableand non-comparable stores and the Company’s e-commerce website. A store isincluded in the comparable store sales calculation after it has completed13 full fiscal months of operation from the store’s original opening dateor once it has been reopened after remodeling. Non-comparable store salesinclude stores which have not completed 13 full fiscal months of operations,sales from closed stores, and sales from stores closed or in temporarylocations 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 comparablestore sales. Net sales from the sale of merchandise at the Company’s stores arerecognized when the customer takes possession of the merchandise and thepurchases are paid for, primarily with either cash or credit card. Net salesfrom the sale of merchandise on the Company’s e-commerce website arerecognized when the merchandise is shipped to the customer. A reserve isprovided for projected merchandise returns based on prior experience.

The Company issues gift cards which do not containprovisions for expiration or inactivity fees. The portion of the dollar valueof gift cards that ultimately is not used by customers to make purchases isknown as breakage. The Company estimates gift card breakage and records suchamounts as revenues as gift cards are redeemed. The Company’s estimate of giftcard breakage is based on analysis of historical redemption patterns as well asthe remaining balance of gift cards for which the Company believes thelikelihood of redemption to be remote.

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

*GrossProfit.**  *Gross profit represents net sales lesscost of goods sold, buying and occupancy costs.

*Selling, General and AdministrativeExpenses.**  *Selling, general and administrativeexpenses include selling, store management and corporate expenses, includingpayroll and employee benefits, employment taxes, management informationsystems, marketing, insurance, legal, store pre-opening and other corporatelevel expenses. Store pre-opening expenses include store level payroll, grandopening event marketing, travel, supplies and other store opening expenses.

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**Results ofOperations**

Thefollowing tables summarize the Company’s results of operations as a percentageof net sales and selected store operating data for the three months ended May 5,2007 and April 29, 2006:

| ** **                                      | ** ** | **Three months  ended  May 5, 2007** | ** ** | **Three months  ended  April 29, 2006** | ** ** |
|-------------------------------------------------|------------|-----------------------------------------------------|------------|--------------------------------------------------------|------------|
| Net sales                                       |       |                                                | 100.0      | %                                                      |       |   | 100.0 | % |   |
| Cost of goods  sold, buying and occupancy costs |       |                                                | 72.4       | %                                                      |       |   | 70.4 | % |   |
| Gross profit                                    |       |                                                | 27.6       | %                                                      |       |   | 29.6 | % |   |
| Selling, general  and administrative expenses   |       |                                                | 27.0       | %                                                      |       |   | 25.6 | % |   |
| Operating income                                |       |                                                | 0.6        | %                                                      |       |   | 4.0 | % |   |
| Interest expense,  net                          |       |                                                | 0.1        | %                                                      |       |   | 0.2 | % |   |
| Income before income taxes                      |       |                                                | 0.5        | %                                                      |       |   | 3.8 | % |   |
| Provision for  income taxes                     |       |                                                | 0.2        | %                                                      |       |   | 1.5 | % |   |
| Net income                                      |       |                                                | 0.3        | %                                                      |       |   | 2.3 | % |   |

 

| ** **                                    | ** ** | **Three months   ended   May 5, 2007**               | ** ** | **Three months   ended   April 29, 2006** | ** ** |
|-----------------------------------------------|------------|-------------------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                    | ** ** | **(Dollars in thousands,  except square foot data)** | ** ** |
| **Selected operating data:**                  | ** ** |                                                                          | ** ** | ** **                                                         |       |   | ** ** | ** ** |   |
| Total net sales  increase (decrease)          |       |                                                                          | 6.3        | %                                                                  |       |   | (1.1 | )% |   |
| Comparable store  sales decrease              |       |                                                                          | (1.2       | )%                                                                 |       |   | (9.2 | )% |   |
| Net sales per  average selling square foot(1) |       |                                                                          | $          | 85                                                                 |       |   |   | $ | 82 |   |   |
| Net sales per  average store(2)               |       |                                                                          | $          | 503                                                                |       |   |   | $ | 509 |   |   |
| Average selling square  footage per store(3)  |       |                                                                          | 5,892      |                                                               |       |   | 6,193 |   |   |

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(1)          Net sales per averageselling square foot is defined as net sales divided by the average of beginningand end of period selling square feet.

(2)          Net sales per averagestore is defined as net sales divided by the average of beginning and end ofperiod number of stores.

(3)          Averageselling square footage per store is defined as end of period selling squarefeet divided by end of period number of stores.

| ** **                                                        | ** ** | **Three months  ended  May 5, 2007** | ** ** | **Three months  ended  April 29, 2006** | ** ** |
|-------------------------------------------------------------------|------------|-----------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                                        | ** ** | **Store  Count**                                    | ** ** | **Selling  Square Feet**                          | ** ** | **Store  Count** | ** ** | **Selling  Square Feet** | ** ** |
| **Store count and selling square feet:** | ** ** |                                                | ** ** | ** **                                             |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Stores open, beginning  of period                                 |       |                                                | 560        |                                                   |       |   | 3,313,437 |   |   |   | 519 |   |   |   | 3,254,465 |   |   |
| New stores                                                        |       |                                                | 11         |                                                   |       |   | 52,297 |   |   |   | 14 |   |   |   | 64,312 |   |   |
| Closed stores                                                     |       |                                                | (2         | )                                                      |       |   | (13,263 | ) |   |   | (3 | ) |   |   | (18,147 | ) |   |
| Net impact of  remodeled stores on selling square feet            |       |                                                | —     |                                                   |       |   | — |   |   |   | — |   |   |   | (18,297 | ) |   |
| Stores open, end  of period                                       |       |                                                | 569        |                                                   |       |   | 3,352,471 |   |   |   | 530 |   |   |   | 3,282,333 |   |   |

 

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***Three Months Ended May 5,2007 Compared to Three Months Ended April 29, 2006***

*Net Sales.**  *Netsales for the three months ended May 5, 2007 increased 6.3% to$284.0 million, as compared to $267.1 million for the three months ended April 29,2006. The increase is primarily driven by net sales from new store openings notyet included in comparable store sales. Comparable store sales decreased 1.2%for the three months ended May 5, 2007, compared to a 9.2% decrease forthe three months ended April 29, 2006. In the comparable store base,average dollar sales per transaction decreased by 3.5% and the number oftransactions per average store increased by 2.4%, as compared to the sameperiod last year.

*Gross Profit.**  *Grossprofit decreased $0.7 million to $78.4 million, or 27.6% of netsales, for the three months ended May 5, 2007, as compared to$79.1 million, or 29.6% of net sales, for the three months ended April 29,2006. During the three months ended May 5, 2007, merchandise margins forthe New York & Company brand remained relatively stable, as comparedto the three months ended April 29, 2006. Merchandise margins for theCompany’s developing JasmineSola brand decreased during the three monthsended May 5, 2007, primarily due to $1.8 million of charges incurred inconnection with the liquidation of inventory resulting from the termination ofa JasmineSola lease and the exiting of that store, coupled with an overallmodification of the JasmineSola closeout strategy. In addition, buying andoccupancy costs for the Company increased as a percentage of net salesprimarily due to increases in real estate costs related to new and remodeledstores combined with the impact of lower comparable store sales.

*Selling, General andAdministrative Expenses.**  *Selling, general andadministrative expenses increased $8.4 million to $76.8 million, or27.0% of net sales, for the three months ended May 5, 2007, as compared to$68.5 million, or 25.6% of net sales, for the three months ended April 29,2006. The increase as a percentage of net sales during the three months ended May 5,2007, as compared to the three months ended April 29, 2006, is largely dueto $3.3 million of expenses, primarily legal costs, incurred in connection withthe arbitration proceeding related to the JasmineSola Stock Purchase Agreement.On an average store basis, selling, general and administrative expensesremained flat with a year ago before the impact of the charges related to thearbitration.

*Operating Income.*   Forthe reasons discussed above, operating income decreased $9.0 million to$1.6 million, or 0.6% of net sales, for the three months ended May 5,2007, as compared to $10.6 million, or 4.0% of net sales, for the threemonths ended April 29, 2006.

*Interest Expense, Net.*   Netinterest expense decreased $0.2 million to $0.3 million for thethree months ended May 5, 2007, as compared to $0.5 million for thethree months ended April 29, 2006. The decrease in net interest expensefor the three months ended May 5, 2007, as compared to the three monthsended April 29, 2006, is primarily related to a decrease in borrowings andfluctuations in interest rates.

*Provision for IncomeTaxes.*   The effective tax rate for the threemonths ended May 5, 2007 was 40.1%, as compared to 40.2% for thethree months ended April 29, 2006.

*Net Income.*   Forthe reasons discussed above, net income decreased $5.3 million to $0.8million, or 0.3% of net sales, for the three months ended May 5, 2007, ascompared to $6.1 million, or 2.3% of net sales, for the three months endedApril 29, 2006.

**Non-GAAP Financial Measure**

The Company has provided anon-GAAP financial measure to adjust net income for the three months ended May 5,2007 and April 29, 2006. This information reflects, on a non-GAAP adjustedbasis, the Company’s net income before interest expense, net; provision forincome taxes; and depreciation and amortization (“EBITDA”). The calculation forEBITDA is provided to enhance the user’s understanding of the Company’soperating results. EBITDA is provided because management believes it is animportant 

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measureof financial performance commonly used to determine the value of companies andto define standards for borrowing from institutional lenders. The non-GAAPfinancial information should be considered in addition to, not as analternative to, net income, as an indicator of the Company’s operatingperformance, and cash flows from operating activities, as a measure of theCompany’s liquidity, as determined in accordance with accounting principlesgenerally accepted in the United States. The Company may calculate EBITDAdifferently than other companies.

**Reconciliationof Net Income to EBITDA**

| ** **                    | ** ** | **Three months ended  May 5, 2007** | ** ** | **Three months ended  April 29, 2006** | ** ** |
|-------------------------------|------------|---------------------------------------------------------|------------|------------------------------------------------------------|------------|
| ** **                    | ** ** | **Amounts in  thousands**                          | ** ** | **As a % of  net sales**               | ** ** | **Amounts in  thousands** | ** ** | **As a % of  net sales** | ** ** |
| Net income                    |       |                                                    | $          | 802                                                        |       |   |   | 0.3 | % |   |   | $ | 6,057 |   |   |   | 2.3 | % |   |
| Add back:                     |       |                                                    |       |                                                       |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense, net         |       |                                                    | 261        |                                                       |       |   | 0.1 | % |   |   | 490 |   |   |   | 0.2 | % |   |
| Provision for income taxes    |       |                                                    | 538        |                                                       |       |   | 0.2 | % |   |   | 4,072 |   |   |   | 1.5 | % |   |
| Depreciation and amortization |       |                                                    | 9,050      |                                                       |       |   | 3.2 | % |   |   | 7,676 |   |   |   | 2.9 | % |   |
| EBITDA                        |       |                                                    | $          | 10,651                                                     |       |   |   | 3.8 | % |   |   | $ | 18,295 |   |   |   | 6.9 | % |   |

 

**Liquidity andCapital Resources**

The Company’s primary uses of cash are to fund workingcapital, operating expenses, debt service and capital expenditures relatedprimarily to the construction of new stores, remodeling of existing stores anddevelopment of the Company’s information systems infrastructure. Historically,the Company has financed these requirements from internally generated cashflow. The Company intends to fund its ongoing capital and working capitalrequirements, as well as debt service obligations, primarily through cash flowsfrom operations, supplemented by borrowings under its credit facilities, ifneeded. The Company is in compliance with all debt covenants as of May 5,2007.

Thefollowing tables contain information regarding the Company’s liquidity andcapital resources:

| ** **                 | ** ** | **May 5,  2007**                | ** ** | **February 3,  2007** | ** ** | **April 29,  2006** | ** ** |
|----------------------------|------------|--------------------------------------|------------|----------------------------|------------|--------------------------|------------|
| ** **                 | ** ** | **(Amounts in thousands)** | ** ** |
| Cash and cash  equivalents |       | $                                    | 36,591     |                       |       | $                        | 68,064     |   |   | $ | 26,897 |   |
| Working capital            |       | $                                    | 73,977     |                       |       | $                        | 69,964     |   |   | $ | 54,577 |   |

 

| ** **                                 | ** ** | **Three months  ended  May 5, 2007** | ** ** | **Three months  ended  April 29, 2006** | ** ** |
|--------------------------------------------|------------|-----------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                 | ** ** | **(Amounts in thousands)**                | ** ** |
| Net cash used in  operating activities     |       |                                                | $          | (21,509                                                | )          |   |   | $ | (19,176 | ) |   |
| Net cash used in  investing activities     |       |                                                | $          | (11,612                                                | )          |   |   | $ | (17,370 | ) |   |
| Net cash provided by  financing activities |       |                                                | $          | 1,648                                                  |       |   |   | $ | 6,007 |   |   |

 

**Operating Activities**

Net cash used in operatingactivities was $21.5 million for the three months ended May 5, 2007,as compared to net cash used in operating activities of $19.2 million forthe three months ended April 29, 2006. The increase in net cash used inoperating activities for the three months ended May 5, 2007, ascompared to the three months ended April 29, 2006, is primarily related tothe decrease in net income, and changes in inventories, prepaid expenses,accrued expenses, income taxes payable, and deferred rent, partially offset bychanges in accounts receivable, accounts payable, and other assets andliabilities.

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**Investing Activities**

Net cash used in investingactivities was $11.6 million for the three months ended May 5,2007, as compared to $17.4 million of net cash used in investingactivities for the three months ended April 29, 2006. The $11.6 millionand the $17.4 million reflect capital expenditures primarily related to theconstruction of new stores and the remodeling of existing stores.

The Company opened11 new stores in the three months ended May 5, 2007, as compared to14 new stores and five remodels in the three months ended April 29, 2006.The Company currently plans to open 50 to 60 stores, close approximately ninestores and remodel 25 to 30 stores in fiscal year 2007, ending the fiscal yearwith 601 to 611 stores. The Company’s future capital requirements will dependprimarily on the number of new stores it opens, the number of existing storesit remodels and the timing of these expenditures.

**Financing Activities**

Net cash provided byfinancing activities was $1.6 million for the three months ended May 5,2007, as compared to net cash provided by financing activities of$6.0 million for the three months ended April 29, 2006. Net cashprovided by financing activities for the three months ended May 5,2007 primarily consists of a $1.5 million quarterly repayment of the$37.5 million January 4, 2006 term loan and $3.2 million ofproceeds from the exercise of stock options and the related tax benefit to theCompany. Net cash provided by financing activities for the three months ended April 29,2006 represents proceeds of $2.3 million from the public offering of commonstock, consummated on January 31, 2006; the payment of $0.5 million infees and expenses related to the offering; a $1.5 million quarterly repaymentof the $37.5 million January 4, 2006 term loan; and $5.7 million ofproceeds from the exercise of stock options and the related tax benefit to theCompany.

**Long-Term Debt and Credit Facilities**

The Company’s creditfacilities consist of a $37.5 million term loan facility and a$90.0 million revolving credit facility (which includes a sub-facilityavailable for issuance of letters of credit of up to $75.0 million), bothhaving a maturity date of March 17, 2009.

As of May 5, 2007,the Company had availability under its revolving credit facility of$66.4 million, net of letters of credit outstanding of $8.9 million,as compared to availability of $62.0 million, net of letters of creditoutstanding of $9.4 million, as of April 29, 2006.

The revolving loans underthe credit facilities bear interest, at the Company’s option, either at afloating rate equal to the Eurodollar rate plus a margin of between 1.00% and2.00% per year, depending upon the Company’s financial performance, or thePrime rate. The Company pays the lenders under the revolving credit facility amonthly fee on outstanding letters of credit at a rate of between 1.00% and1.50% per year, depending upon the Company’s financial performance, plus amonthly fee on a proportion of the unused commitments under that facility at arate of between 0.25% and 0.50% per year, depending upon the Company’s financialperformance. The term loan bears interest at a floating rate equal to theEurodollar rate plus 2.50% per year. If any default were to exist under therevolving credit facility and for so long as such default were to continue, atthe option of the agent or lenders, interest on the revolving loans mayincrease to 4.00% per year above the Eurodollar rate for Eurodollar rate loansand 2.00% per year above the Prime rate for all Prime rate loans, and intereston the term loan may increase to the Eurodollar rate plus 4.50% per year.

**Critical Accounting Policies**

The preparation offinancial statements in conformity with generally accepted accountingprinciples in the United States requires management to make estimates andassumptions that impact the amounts 

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reportedon the Company’s consolidated financial statements and related notes. On anongoing basis, management evaluates its estimates and judgments, includingthose related to inventories, long-lived assets, goodwill and other intangibleassets. Management bases its estimate and judgments on historical experienceand various other factors that are believed to be reasonable under thecircumstances. Actual results may differ materially from these judgments.Management believes the following estimates and assumptions are mostsignificant to reporting the Company’s results of operations and financialposition.

*Inventory Valuation.*   Inventoriesare principally valued at the lower of average cost or market, on a weightedaverage cost basis, using the retail method. The Company records a charge tocost of goods sold, buying and occupancy costs for all inventory on-handwhen a permanent retail price reduction is reflected in its stores. Inaddition, management makes estimates and judgments regarding, among otherthings, initial markup, markdowns, future demand and market conditions, all ofwhich significantly impact the ending inventory valuation. If actual futuredemand or market conditions are different than those projected by management,future period merchandise margin rates may be unfavorably or favorablyaffected. Other significant estimates related to inventory include shrink and obsoleteand excess inventory which are also based on historical results and management’soperating projections.

*Impairment of Long-LivedAssets.*   The Company evaluates long-lived assetsin accordance with SFAS No. 144, “Accounting for the Impairment or Disposalof Long-Lived Assets” (“SFAS 144”). Long-lived assets are evaluated forrecoverability in accordance with SFAS 144 whenever events or changes incircumstances indicate that an asset may have been impaired. In evaluating anasset for recoverability, the Company estimates the future cash flow expectedto result from the use of the asset and eventual disposition. If the sum of theexpected future undiscounted cash flow is less than the carrying amount of theasset, an impairment loss, equal to the excess of the carrying amount over thefair value of the asset, is recognized. An impairment loss could have amaterial adverse impact on the Company’s financial condition and results ofoperations. The Company’s evaluation for the three months ended May 5,2007 resulted in no material asset impairment charge.

*Goodwill and OtherIntangible Assets.*   SFAS No. 142, “Goodwilland Other Intangible Assets,” prohibits the amortization of goodwill andintangible assets with indefinite lives. The Company’s intangible assets relateprimarily to the *New York & Company*trademarks, the *JasmineSola* trademarks andgoodwill associated with the acquisition of JasmineSola on July 19, 2005.The trademarks were initially valued using the “relief from royalty method” andwere determined to have indefinite lives by an independent appraiser. Goodwillrepresents the excess of the purchase price over the fair value of the netassets acquired.

The Company tests forimpairment of goodwill and other intangible assets at least annually in thefourth quarter, or more frequently if events or circumstances indicate that theasset may be impaired, by comparing the fair value with the carrying amount foreach individual asset. Goodwill impairment is determined using a two-stepprocess. The first step of the goodwill impairment test is to identify apotential impairment by comparing the fair value of a reporting unit with itscarrying amount, including the goodwill assigned to the reporting unit. Theestimate of fair value of a reporting unit is determined using a discountedcash flow model. If the fair value of a reporting unit exceeds its carryingamount, goodwill of the reporting unit is not deemed to be impaired and thesecond step of the impairment test is not performed. If the carrying amount ofa reporting unit exceeds its fair value, the second step of the goodwillimpairment test is performed to measure the amount of impairment loss, if any.The second step of the goodwill impairment test compares the implied fair valueof the reporting unit’s goodwill with the carrying amount of that goodwill. Ifthe carrying amount of the reporting unit’s goodwill exceeds the implied fairvalue of that goodwill, an impairment loss is recognized in an amount equal tothat excess. The implied fair value of goodwill is determined in the samemanner as the amount of goodwill recognized in a business combination. In otherwords, the fair value of the reporting unit is allocated to all of the assetsand liabilities of that unit (including any unrecognized intangible assets) asif the reporting unit had been 

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acquiredin a business combination and the fair value of the reporting unit was thepurchase price paid to acquire the reporting unit.

The impairment test forother intangible assets not subject to amortization consists of a comparison ofthe fair value of the intangible asset with its carrying value. The estimatesof fair value of intangible assets not subject to amortization, specificallytrademarks, are determined using the “relief from royalty method.” If thecarrying value of the intangible asset exceeds its fair value, an impairmentloss is recognized in an amount equal to that excess.

The calculation ofestimated fair values used in the evaluation of goodwill and other intangibleassets requires estimates of future cash flows, growth rates, discount ratesand other variables, that are based on management’s historical experience,knowledge, and market data. If actual experience differs materially frommanagement’s estimates, impairment charges may be required. Management’sestimates may be affected by factors such as those outlined in the section ofthis report entitled MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS—SPECIAL NOTE REGARDING FORWARD-LOOKINGSTATEMENTS AND RISK FACTORS. An impairment loss could have a material adverseimpact on the Company’s results of operations.

*Income Taxes.*   Incometaxes are calculated in accordance with SFAS No. 109, “Accounting forIncome Taxes,” which requires the use of the liability method. Deferred taxassets and liabilities are recognized based on the difference between thefinancial statement carrying amounts of assets and liabilities and theirrespective tax bases. Inherent in the measurement of deferred balances arecertain judgments and interpretations of enacted tax laws and publishedguidance with respect to applicability to the Company’s operations. Deferredtax assets are believed to be fully realizable as management expects futuretaxable income will be sufficient to recover the asset values and, as such, norelated valuation allowance has been provided for. The Company adopted theprovisions of FASB Interpretation No. 48, “Accounting for Uncertainty inIncome Taxes—an interpretation of FASB Statement No. 109” on February 4,2007, as described further in footnote 7, “Income Taxes” in the Notes toCondensed Consolidated Financial Statements.

**Adoption of New Accounting Standards**

In June 2006, theFASB issued Interpretation No. 48, “Accounting for Uncertainty in IncomeTaxes—an interpretation of FASB Statement No. 109.” This Interpretationclarifies the accounting for uncertain tax positions recognized in a company’sfinancial statements in accordance with the provisions of FASB Statement No. 109,“Accounting for Income Taxes.” This Interpretation prescribes a recognitionthreshold and measurement attribute for the financial statement recognition andmeasurement of a tax position taken or expected to be taken in a tax return.This Interpretation also provides guidance on derecognition of uncertainpositions, financial statement classification, accounting for interest andpenalties, accounting in interim periods, disclosure, and transition. ThisInterpretation is effective for fiscal years beginning after December 15,2006. The Company adopted the provisions of this Interpretation on February 4,2007, as described further in footnote 7, “Income Taxes” in the Notes toCondensed Consolidated Financial Statements.

In September 2006,the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157establishes a common definition for fair value to be applied to US GAAPguidance requiring the use of fair value, establishes a framework for measuringfair value, and expands the disclosure about such fair value measurements. SFASNo. 157 is effective for fiscal years beginning after November 15,2007, and interim periods within those fiscal years. The Company is currentlyevaluating the impact, if any, that the adoption of this Statement will have onits financial position and results of operations.

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In September 2006,the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pensionand Other Postretirement Plans, an amendment of FASB statements No. 87,88, 106, and 132(R).” SFAS No. 158 requires recognition of the overfundedor underfunded status of defined benefit postretirement plans as an asset orliability in the statement of financial position and requires companies torecognize changes in that funded status in comprehensive income in the year inwhich the changes occur. SFAS No. 158 also requires measurement of thefunded status of a plan as of the date of the statement of financial position.SFAS No. 158 is effective for recognition of the funded status of benefitplans for fiscal years ending after December 15, 2006 and is effective forthe measurement date provisions for fiscal years ending after December 15,2008. The adoption of the recognition provisions of this Statement at February 3,2007 did not have an impact on the Company’s financial position and results ofoperations. The Company does not anticipate that the adoption of themeasurement date provisions of this Statement will have a material impact onits financial position and results of operations.

**ITEM 3.**                QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

*Interest Rates.*   TheCompany’s market risks relate primarily to changes in interest rates. TheCompany’s credit facilities carry floating interest rates that are tied to theEurodollar rate and the Prime rate and therefore, the consolidated statementsof income and the consolidated statements of cash flows will be exposed tochanges in interest rates. A 1.0% interest rate increase would increaseinterest expenses by approximately $0.3 million annually. The Companyhistorically has not engaged in interest rate hedging activities.

*Currency Exchange Rates.*   TheCompany historically has not been exposed to currency exchange rate risks withrespect to inventory purchases as such expenditures have been, and continue tobe, denominated in U.S. Dollars. The Company purchases some of its inventoryfrom suppliers in China, for which the Company pays U.S. Dollars. SinceJuly 2005, China has been slowly increasing the value of the Chinese Yuan,which is now linked to a basket of world-currencies. If the exchange rate ofthe Chinese Yuan to the U.S. Dollar continues to increase, the Company mayexperience fluctuations in the cost of inventory purchased from China and theCompany would adjust its supply chain accordingly.

**ITEM 4.**                CONTROLSAND PROCEDURES

(a)   *Evaluation of disclosurecontrols and procedures*.    The Company carried out anevaluation, as of May 5, 2007, under the supervision and with theparticipation of the Company’s management, including the Company’s PrincipalExecutive Officer and Principal Financial Officer, of the effectiveness of thedesign and operation of the Company’s disclosure controls and procedurespursuant to Rule 13a-15(e) and 15d-15(e) of theSecurities Exchange Act of 1934, as amended. Based upon that evaluation, thePrincipal Executive Officer and Principal Financial Officer concluded that theCompany’s disclosure controls and procedures are effective in ensuring that allinformation required to be filed in this Quarterly Report on Form 10-Qwas (i) recorded, processed, summarized and reported within the timeperiod specified in the Securities and Exchange Commission’s rules andforms (ii) and that the disclosure controls and procedures include,without limitation, controls and procedures designed to ensure that informationrequired to be disclosed by the Company in the reports that the Company filesor submits under the Exchange Act is accumulated and communicated to theCompany’s management, including its Principal Executive and Principal FinancialOfficers, as appropriate to allow timely decisions regarding requireddisclosure.

(b)   *Changes in internalcontrol over financial reporting*.   There has been no change inthe Company’s internal control over financial reporting identified inconnection with the evaluation required by paragraph (d) of Exchange Act Rule 13a-15or 15d-15 that occurred during the Company’s last fiscal quarter(the Company’s fourth fiscal quarter in the case of an annual report) that hasmaterially affected, or is reasonably likely to materially affect, the Company’sinternal control over financial reporting.

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**PART II.OTHER INFORMATION**

**ITEM1.**                LEGAL PROCEEDINGS

There have been nomaterial changes in the Company’s legal proceedings from what was reported inits Annual Report on Form 10-K filed with the SEC on April 6,2007.

**ITEM1A.**        RISK FACTORS

There have been nomaterial changes in the Company’s risk factors from what was reported in itsAnnual Report on Form 10-K filed with the SEC on April 6, 2007.

**ITEM2.**                UNREGISTERED SALESOF EQUITY SECURITIES AND USE OF PROCEEDS

None.

**ITEM3.**                DEFAULTS UPONSENIOR SECURITIES

None.

**ITEM4.**                SUBMISSION OFMATTERS TO A VOTE OF SECURITY HOLDERS

None.

**ITEM5.**                OTHER INFORMATION

None.

**ITEM6.**                EXHIBITS

Thefollowing exhibits are filed with this report and made a part hereof.
| 31.1 |   | Certification of Chief Executive Officer Pursuant to  Rules 13a-14(a) and 15d-14(a) promulgated under  the Securities Exchange Act of 1934, as amended.                               |
|------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.2 |   | Certification of Chief Financial Officer Pursuant to  Rules 13a-14(a) and 15d-14(a) promulgated under the  Securities Exchange Act of 1934, as amended.                               |
| 32.1 |   | Certification of Chief Executive Officer and Chief  Financial Officer Pursuant to 18 U.S.C. Section 1350, as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |

 

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**SIGNATURES**

Pursuantto the requirements of the Securities Exchange Act of 1934, as amended, theRegistrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

|        | NEW YORK &  COMPANY, INC. |
|--------|-----------------------------------------|
|   | /s/ RONALD W. RISTAU                    |
|   | By:                                     | Ronald W. Ristau |
|   | Its:                                    | *President and Chief Financial Officer  (Principal Financial Officer)* |
|   | Date:                                   | June 14, 2007 |

 

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