**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 OF 1934

**forthe quarterly period ended October 28, 2006**

**OR**

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACT OF 1934

**forthe transition periodfrom                to                .**

**COMMISSIONFILE NUMBER: 1-32315**

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

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

 

Indicate by check markwhether the Registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the 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“large accelerated filer” in Rule 12b-2 of the Exchange Act. (Checkone):
| 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

Asof November 24, 2006, the registrant had 56,893,004 shares of commonstock 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                                 |   | 20 |   |
| Item 4.                            |   | Controls  and Procedures                                                                    |   | 21 |   |
| PART II. OTHER INFORMATION    |   |                                                                                        |   |
| Item 1.                            |   | Legal  Proceedings                                                                          |   | 22 |   |
| Item 1A.                           |   | Risk Factors                                                                                |   | 22 |   |
| Item 2.                            |   | Unregistered  Sales of Equity Securities and Use of Proceeds                                |   | 22 |   |
| Item 3.                            |   | Defaults  Upon Senior Securities                                                            |   | 22 |   |
| Item 4.                            |   | Submission  of Matters to a Vote of Security Holders                                        |   | 22 |   |
| Item 5.                            |   | Other  Information                                                                          |   | 22 |   |
| Item 6.                            |   | Exhibits                                                                                    |   | 22 |   |
|                                    |        |                                                                                             |        |  |  |  |

 

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**PART I.FINANCIAL INFORMATION**

**ITEM 1.**   FINANCIALSTATEMENTS

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

| ** **                                                                             | ** ** | **Three months  ended  October 28,  2006**                               | ** ** | **Three months  ended  October 29,  2005** | ** ** | **Nine months  ended  October 28,  2006** | ** ** | **Nine months  ended  October 29,  2005** | ** ** |
|----------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                             | ** ** | **(Amounts in thousands, except per share amounts)** | ** ** |
| Net sales                                                                              |       |                                                                               | $          | 270,922                                              |       |                                                |       | $                                                   | 254,388    |   |   |   | $ | 802,917 |   |   |   | $ | 778,944 |   |   |
| Cost of goods  sold, buying and occupancy costs                                        |       |                                                                               | 180,996    |                                                 |       |                                                | 179,896    |                                                |       |   | 558,307 |   |   |   | 524,124 |   |   |
| Gross profit                                                                           |       |                                                                               | 89,926     |                                                 |       |                                                | 74,492     |                                                |       |   | 244,610 |   |   |   | 254,820 |   |   |
| Selling, general  and administrative expenses                                          |       |                                                                               | 73,382     |                                                 |       |                                                | 65,830     |                                                |       |   | 206,066 |   |   |   | 187,034 |   |   |
| Operating income                                                                       |       |                                                                               | 16,544     |                                                 |       |                                                | 8,662      |                                                |       |   | 38,544 |   |   |   | 67,786 |   |   |
| Interest expense,  net of interest income of $324, $337, $873 and $1,313, respectively |       |                                                                               | 471        |                                                 |       |                                                | 1,675      |                                                |       |   | 1,438 |   |   |   | 4,385 |   |   |
| Income before income taxes                                                             |       |                                                                               | 16,073     |                                                 |       |                                                | 6,987      |                                                |       |   | 37,106 |   |   |   | 63,401 |   |   |
| Provision for  income taxes                                                            |       |                                                                               | 6,480      |                                                 |       |                                                | 2,833      |                                                |       |   | 14,957 |   |   |   | 25,517 |   |   |
| Net income                                                                             |       |                                                                               | $          | 9,593                                                |       |                                                |       | $                                                   | 4,154      |   |   |   | $ | 22,149 |   |   |   | $ | 37,884 |   |   |
| Basic earnings per share                                                               |       |                                                                               | $          | 0.17                                                 |       |                                                |       | $                                                   | 0.08       |   |   |   | $ | 0.40 |   |   |   | $ | 0.70 |   |   |
| Diluted earnings per share                                                             |       |                                                                               | $          | 0.16                                                 |       |                                                |       | $                                                   | 0.07       |   |   |   | $ | 0.37 |   |   |   | $ | 0.66 |   |   |
| Weighted average shares  outstanding:                                                  |       |                                                                               |       |                                                 |       |                                                |       |                                                |       |   |   |   |   |   |   |   |   |
| Basic shares of common stock                                                           |       |                                                                               | 56,381     |                                                 |       |                                                | 54,297     |                                                |       |   | 55,755 |   |   |   | 53,764 |   |   |
| Diluted shares of  common stock                                                        |       |                                                                               | 59,963     |                                                 |       |                                                | 57,675     |                                                |       |   | 59,853 |   |   |   | 57,182 |   |   |

 

See accompanying notes.

1

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**New York & Company, Inc. andSubsidiariesCondensed Consolidated Balance Sheets**

| ** **                                                                                                                                                                                                  | ** ** | **October 28,  2006**                                                         | ** ** | **January 28,  2006**                        | ** ** | **October 29,  2005**                          | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                                                                                                                                                  | ** ** | **   (Unaudited)   **                                | ** ** | **   (Audited)   ** | ** ** | **   (Unaudited)   ** | ** ** |
| ** **                                                                                                                                                                                                  | ** ** | **(Amounts in thousands, except per share amounts)** | ** ** |
| **Assets**                                                                                                                                                                                                  | ** ** |                                                                               | ** ** | ** **                                        |       |                                                | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Current assets:                                                                                                                                                                                             |       |                                                                               |       |                                              |       |                                                |       |   |   |   |   |   |   |
| Cash and cash equivalents                                                                                                                                                                                   |       |                                                                               | $          | 23,732                                            |       |                                                |       | $ | 57,436 |   |   |   | $ | 30,027 |   |   |
| Accounts receivable                                                                                                                                                                                         |       |                                                                               | 23,446     |                                              |       |                                                | 15,581     |   |   |   | 21,642 |   |   |
| Inventories, net                                                                                                                                                                                            |       |                                                                               | 150,379    |                                              |       |                                                | 109,656    |   |   |   | 136,772 |   |   |
| Prepaid expenses                                                                                                                                                                                            |       |                                                                               | 19,368     |                                              |       |                                                | 18,770     |   |   |   | 16,466 |   |   |
| Other current assets                                                                                                                                                                                        |       |                                                                               | 3,222      |                                              |       |                                                | 1,515      |   |   |   | 3,088 |   |   |
| Total current  assets                                                                                                                                                                                       |       |                                                                               | 220,147    |                                              |       |                                                | 202,958    |   |   |   | 207,995 |   |   |
| Property and  equipment, net                                                                                                                                                                                |       |                                                                               | 201,991    |                                              |       |                                                | 159,388    |   |   |   | 154,338 |   |   |
| Goodwill and  intangible assets                                                                                                                                                                             |       |                                                                               | 43,141     |                                              |       |                                                | 41,702     |   |   |   | 41,024 |   |   |
| Other assets                                                                                                                                                                                                |       |                                                                               | 1,814      |                                              |       |                                                | 2,227      |   |   |   | 2,887 |   |   |
| Total assets                                                                                                                                                                                                |       |                                                                               | $          | 467,093                                           |       |                                                |       | $ | 406,275 |   |   |   | $ | 406,244 |   |   |
| **Liabilities  and stockholders’ equity**                                                                                                                                                              | ** ** |                                                                               | ** ** | ** **                                        |       |                                                | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Current liabilities:                                                                                                                                                                                        |       |                                                                               |       |                                              |       |                                                |       |   |   |   |   |   |   |
| Current portion, long-term debt                                                                                                                                                                             |       |                                                                               | $          | 6,000                                             |       |                                                |       | $ | 6,000 |   |   |   | $ | — |   |   |
| Accounts payable                                                                                                                                                                                            |       |                                                                               | 96,219     |                                              |       |                                                | 90,980     |   |   |   | 84,762 |   |   |
| Accrued expenses                                                                                                                                                                                            |       |                                                                               | 62,105     |                                              |       |                                                | 55,261     |   |   |   | 53,350 |   |   |
| Income taxes payable                                                                                                                                                                                        |       |                                                                               | 3,727      |                                              |       |                                                | —     |   |   |   | 730 |   |   |
| Deferred income taxes                                                                                                                                                                                       |       |                                                                               | 3,092      |                                              |       |                                                | 3,016      |   |   |   | 586 |   |   |
| Total current  liabilities                                                                                                                                                                                  |       |                                                                               | 171,143    |                                              |       |                                                | 155,257    |   |   |   | 139,428 |   |   |
| Long-term  debt, net of current portion                                                                                                                                                                     |       |                                                                               | 27,000     |                                              |       |                                                | 31,500     |   |   |   | 75,000 |   |   |
| Deferred income  taxes                                                                                                                                                                                      |       |                                                                               | 3,180      |                                              |       |                                                | 4,723      |   |   |   | 2,282 |   |   |
| Deferred rent and  other liabilities                                                                                                                                                                        |       |                                                                               | 54,823     |                                              |       |                                                | 35,745     |   |   |   | 34,591 |   |   |
| Total liabilities                                                                                                                                                                                           |       |                                                                               | 256,146    |                                              |       |                                                | 227,225    |   |   |   | 251,301 |   |   |
| Commitments and  contingencies                                                                                                                                                                              |       |                                                                               | —     |                                              |       |                                                | —     |   |   |   | — |   |   |
| Stockholders’  equity:                                                                                                                                                                                 |       |                                                                               |       |                                              |       |                                                |       |   |   |   |   |   |   |
| Common stock, voting, par value $0.001; 300,000  shares authorized; 56,622, 54,629 and 54,324 shares issued and outstanding at  October 28, 2006, January 28, 2006, and October 29, 2005, respectively |       |                                                                               | 57         |                                              |       |                                                | 55         |   |   |   | 54 |   |   |
| Additional paid-in capital                                                                                                                                                                                  |       |                                                                               | 136,236    |                                              |       |                                                | 126,490    |   |   |   | 123,223 |   |   |
| Retained earnings                                                                                                                                                                                           |       |                                                                               | 75,123     |                                              |       |                                                | 52,974     |   |   |   | 32,370 |   |   |
| Accumulated other comprehensive loss                                                                                                                                                                        |       |                                                                               | (469       | )                                                 |       |                                                | (469       | ) |   |   | (704 | ) |   |
| Total  stockholders’ equity                                                                                                                                                                            |       |                                                                               | 210,947    |                                              |       |                                                | 179,050    |   |   |   | 154,943 |   |   |
| Total liabilities and  stockholders’ equity                                                                                                                                                            |       |                                                                               | $          | 467,093                                           |       |                                                |       | $ | 406,275 |   |   |   | $ | 406,244 |   |   |

 

See accompanying notes.

2

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

| ** **                                                                         | ** ** | **Nine months  ended  October 28,   2006** | ** ** | **Nine months  ended  October 29,   2005** | ** ** |
|------------------------------------------------------------------------------------|------------|-----------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                                                                         | ** ** | **(Amounts in thousands)**                      | ** ** |
| **Operating activities**                                                           |       |                                                      |       |                                                      |       |   |   |   |   |
| Net income                                                                         |       |                                                      | $          | 22,149                                                    |       |   |   | $ | 37,884 |   |   |
| Adjustments to reconcile  net income to net cash provided by operating activities: |       |                                                      |       |                                                      |       |   |   |   |   |
| Depreciation and amortization                                                      |       |                                                      | 23,713     |                                                      |       |   | 17,638 |   |   |
| Amortization of deferred financing costs                                           |       |                                                      | 207        |                                                      |       |   | 866 |   |   |
| Share-based compensation                                                           |       |                                                      | 1,231      |                                                      |       |   | 803 |   |   |
| Deferred income taxes                                                              |       |                                                      | (1,210     | )                                                         |       |   | (5,618 | ) |   |
| Changes in  operating assets and liabilities:                                      |       |                                                      |       |                                                      |       |   |   |   |   |
| Accounts receivable                                                                |       |                                                      | (10,159    | )                                                         |       |   | (8,573 | ) |   |
| Inventories, net                                                                   |       |                                                      | (40,723    | )                                                         |       |   | (39,606 | ) |   |
| Prepaid expenses                                                                   |       |                                                      | (598       | )                                                         |       |   | 1,430 |   |   |
| Accounts payable                                                                   |       |                                                      | 5,239      |                                                      |       |   | 8,703 |   |   |
| Accrued expenses                                                                   |       |                                                      | 7,194      |                                                      |       |   | 1,488 |   |   |
| Income taxes payable                                                               |       |                                                      | 3,727      |                                                      |       |   | 730 |   |   |
| Other assets and liabilities                                                       |       |                                                      | 15,649     |                                                      |       |   | 15,442 |   |   |
| Net cash provided  by operating activities                                         |       |                                                      | 26,419     |                                                      |       |   | 31,187 |   |   |
| **Investing  activities**                                                          |       |                                                      |       |                                                      |       |   |   |   |   |
| Acquisition of  Jasmine Company, Inc., net of cash acquired                        |       |                                                      | —     |                                                      |       |   | (21,350 | ) |   |
| Capital  expenditures                                                              |       |                                                      | (66,084    | )                                                         |       |   | (68,566 | ) |   |
| Net cash used in  investing activities                                             |       |                                                      | (66,084    | )                                                         |       |   | (89,916 | ) |   |
| **Financing  activities**                                                          |       |                                                      |       |                                                      |       |   |   |   |   |
| Proceeds from  public offering                                                     |       |                                                      | 2,294      |                                                      |       |   | — |   |   |
| Payment of public  offering costs                                                  |       |                                                      | (439       | )                                                         |       |   | — |   |   |
| Repayment of debt                                                                  |       |                                                      | (4,500     | )                                                         |       |   | (1,327 | ) |   |
| Tax benefit from  exercise of stock options                                        |       |                                                      | 7,598      |                                                      |       |   | 4,679 |   |   |
| Proceeds from  exercise of stock options                                           |       |                                                      | 1,008      |                                                      |       |   | 243 |   |   |
| Net cash provided  by financing activities                                         |       |                                                      | 5,961      |                                                      |       |   | 3,595 |   |   |
| Net decrease in  cash and cash equivalents                                         |       |                                                      | (33,704    | )                                                         |       |   | (55,134 | ) |   |
| Cash and cash  equivalents at beginning of period                                  |       |                                                      | 57,436     |                                                      |       |   | 85,161 |   |   |
| Cash and cash  equivalents at end of period                                        |       |                                                      | $          | 23,732                                                    |       |   |   | $ | 30,027 |   |   |
| **Supplemental  disclosure of non-cash financing activities**                      |       |                                                      |       |                                                      |       |   |   |   |   |
| Issuance of common stock  for the acquisition of Jasmine Company, Inc.             |       |                                                      | $          | —                                                    |       |   |   | $ | 8,050 |   |   |

 

See accompanying notes.

3

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**New York & Company, Inc.Notes to Condensed Consolidated Financial StatementsOctober 28, 2006(Unaudited)**

**1.**                 Organizationand Basis 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 *NewYork & CompanyTM* merchandise sold exclusively through itsnational network of New York & Company retail stores and, beginning inNovember 2006, on-line at www.nyandcompany.com. The target customers for theCompany’s *New York & CompanyTM*merchandise are fashion-conscious, value-sensitive women between the ages of25 and 45. On July 19, 2005, the Company acquired JasmineCompany, Inc. (“JasmineSola”), a Boston-based, privately held women’sretailer of upscale and contemporary apparel, footwear and accessories soldthrough its chain of *JasmineSolaTM* branded retail stores. As of October28, 2006, the Company operated 560 retail stores in 45 states,including 23 JasmineSola stores. Trademarks referenced in this Quarterly Reporton Form 10-Q appear in italic type and are the property of theCompany.

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.; NevadaReceivable Factoring, Inc. and JasmineSola. On a stand alone basis,without the consolidation of its subsidiaries, New York &Company, Inc. has no significant independent assets or operations. Allsignificant intercompany balances and transactions have been eliminated inconsolidation.

The condensed consolidated financial statements as of October28, 2006 and October 29, 2005 and for the thirteen weeks (“threemonths”) and thirty-nine weeks (“nine months”) ended October 28, 2006 and October29, 2005 are unaudited and are presented pursuant to the rules andregulations of the United States Securities and Exchange Commission (“SEC”).Accordingly, these unaudited condensed consolidated financial statements shouldbe read in conjunction with the audited consolidated financial statements andnotes thereto for the fiscal year ended January 28, 2006 (“fiscal year2005”), which were filed with the Company’s Annual Report on Form 10-Kwith the SEC on April 7, 2006. The fiscal year ending February 3,2007 is referred to herein as “fiscal year 2006.” In the opinion of management,the accompanying condensed 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.

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.**                 PublicOffering of Common Stock

On January 25, 2006, the Company completed apublic offering of 8,050,000 shares of common stock, including theunderwriters’ over-allotment option, of which 130,000 shares were offered bythe Company and 7,920,000 shares were offered by certain selling stockholdersat a price to the public of $18.50 per share. Upon consummation of the publicoffering on January 31, 2006, net proceeds of $2.3 million and$139.8 million were distributed to the Company and selling stockholders,respectively.

4

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**2.      PublicOffering of Common Stock (Continued)**

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

**3.**                 Acquisition

On July 19, 2005, theCompany entered into a Stock Purchase Agreement to acquire all of theoutstanding common stock of JasmineSola for $22.5 million in cash and350,000 shares of New York & Company, Inc. common stock,$0.001 par value, valued at $8.1 million based upon the closing stockprice of New York & Company, Inc. on July 19, 2005. Inaddition, the Company will issue up to 200,000 shares of its common stock asadditional consideration for the acquisition of JasmineSola contingent upon theachievement of certain growth targets over the three full fiscal yearsfollowing the acquisition. These contingent shares, if issued, will be recordedas 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.

The Company is currentlyengaged in an arbitration proceeding relating to the Stock Purchase Agreement,which could result in a future adjustment to the purchase price and acorresponding adjustment to goodwill.

**4.**                 EarningsPer Share

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. A reconciliation between basic and diluted earnings per shareis as follows: 

| ** **                            | ** ** | **Three months  ended  October 28,   2006**                         | ** ** | **Three months  ended  October 29,   2005** | ** ** | **Nine months  ended  October 28,   2006** | ** ** | **Nine months  ended  October 29,   2005** | ** ** |
|---------------------------------------|------------|------------------------------------------------------------------------------------|------------|------------------------------------------------------------|------------|-----------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                            | ** ** | **(Amounts in thousands, except per share amounts)** | ** ** |
| Net income                            |       |                                                                               | $          | 9,593                                                      |       |                                                      |       | $                                                         | 4,154      |   |   |   | $ | 22,149 |   |   |   | $ | 37,884 |   |   |
| *Basic EPS*                           | * *   |                                                                               |       |                                                       |       |                                                      |       |                                                      |       |   |   |   |   |   |   |   |   |
| Weighted average  shares outstanding: |       |                                                                               |       |                                                       |       |                                                      |       |                                                      |       |   |   |   |   |   |   |   |   |
| Basic shares of common stock          |       |                                                                               | 56,381     |                                                       |       |                                                      | 54,297     |                                                      |       |   | 55,755 |   |   |   | 53,764 |   |   |
| Basic EPS                             |       |                                                                               | $          | 0.17                                                       |       |                                                      |       | $                                                         | 0.08       |   |   |   | $ | 0.40 |   |   |   | $ | 0.70 |   |   |
| *Diluted  EPS*                        | * *   |                                                                               |       |                                                       |       |                                                      |       |                                                      |       |   |   |   |   |   |   |   |   |
| Weighted average  shares outstanding: |       |                                                                               |       |                                                       |       |                                                      |       |                                                      |       |   |   |   |   |   |   |   |   |
| Basic shares of common stock          |       |                                                                               | 56,381     |                                                       |       |                                                      | 54,297     |                                                      |       |   | 55,755 |   |   |   | 53,764 |   |   |
| Plus impact of stock options          |       |                                                                               | 3,582      |                                                       |       |                                                      | 3,378      |                                                      |       |   | 4,098 |   |   |   | 3,418 |   |   |
| Diluted shares of common stock        |       |                                                                               | 59,963     |                                                       |       |                                                      | 57,675     |                                                      |       |   | 59,853 |   |   |   | 57,182 |   |   |
| Diluted EPS                           |       |                                                                               | $          | 0.16                                                       |       |                                                      |       | $                                                         | 0.07       |   |   |   | $ | 0.37 |   |   |   | $ | 0.66 |   |   |

 

The calculation of dilutedearnings per share for the three months ended October 28, 2006 and October 29,2005  excludes options to purchase 768,165 and 395,336 shares,respectively, due to their antidilutive effect. The calculation of dilutedearnings per share for the nine months ended October 28, 2006 and October 29,2005 excludes options to purchase 826,279 and 144,279 shares, respectively, dueto their antidilutive effect. 

5

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**5.**                 Share-BasedCompensation

In December 2004, the Financial AccountingStandards Board (“FASB”) published SFAS No. 123 (Revised 2004), “Share-BasedPayment” (“SFAS 123-R”). SFAS 123-R retains certainrequirements of the original SFAS No. 123, “Accounting for Stock-BasedCompensation” (“SFAS 123”) and requires all forms of share-basedpayment to employees, including employee stock options, to be treated ascompensation and recognized in the consolidated statement of income. TheCompany adopted SFAS 123-R in December 2004, utilizing the modifiedprospective method. Prior to the Company’s adoption of SFAS 123-R,the Company followed SFAS 123 and treated all forms of share-basedpayments as compensation recognized in the consolidated statement of income.Therefore, the adoption of SFAS 123-R did not have a material impacton the Company’s consolidated financial statements.

In connection with the consummation of the publicoffering on January 31, 2006, BSMB/NYCG, LLC, an affiliate of Bear StearnsMerchant Banking and the controlling stockholder of the Company, realized acash return in excess of 3.0 times its investment in the Company; as such,2,777,311 options to purchase common stock issued pursuant to grants underthe Company’s Amended and Restated 2002 Stock Option Plan vested and becameimmediately exercisable.

The Company recorded share-based compensation expensein the amount of $0.4 million and $0.3 million for the three monthsended October 28, 2006 and October 29, 2005, respectively, and $1.2million and $0.8 million for the nine months ended October 28, 2006 and October29, 2005, respectively. Included in the $1.2 million of share-basedcompensation expense for the nine months ended October 28, 2006 is$0.2 million of expense related to the 2,777,311 stock options thatvested on January 31, 2006.

During the nine monthsended October 28, 2006, the Company issued 36,500 shares of restricted stock tocertain officers and members of its board of directors and 1,955,935 shares ofcommon stock were issued upon exercise of stock options.

**6.**                 PensionPlan

The Company sponsors a single-employer definedbenefit pension plan covering substantially all union employees. Employeescovered by collective bargaining agreements are primarily non-management storeassociates, representing approximately 10% of the Company’s total employees.The Company’s collective bargaining agreement with the Local 1102 unit of theRetail, Wholesale and Department Store Union (RWDSU) AFL-CIO that was set toexpire in August 2005 is under renegotiation.****Asigned extension agreement is in effect until February 28, 2007.

Theplan provides retirement benefits for union employees who have attained the ageof 18 and completed 425 hours of service in the twelve-monthperiod following the date of employment. The plan provides benefits based onlength of service. The Company’s funding policy for the plan is to contributeannually the amount necessary to provide for benefits based on accrued service.The Company does not anticipate the need for a material contribution to theplan for the remainder of the current fiscal year. Net periodic benefit costincludes the following components: 

| ** **                      | ** ** | **Three months  ended  October 28,   2006** | ** ** | **Three months  ended  October 29,   2005** | ** ** | **Nine months  ended  October 28,   2006** | ** ** | **Nine months  ended  October 29,   2005** | ** ** |
|---------------------------------|------------|------------------------------------------------------------|------------|------------------------------------------------------------|------------|-----------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                      | ** ** | **(Amounts in thousands)**                       | ** ** |
| Service cost                    |       |                                                       | $          | 83                                                         |       |                                                      |       | $                                                         | 73         |   |   |   | $ | 249 |   |   |   | $ | 219 |   |   |
| Interest cost                   |       |                                                       | 135        |                                                       |       |                                                      | 137        |                                                      |       |   | 405 |   |   |   | 410 |   |   |
| Expected return  on plan assets |       |                                                       | (180       | )                                                          |       |                                                      | (188       | )                                                         |       |   | (539 | ) |   |   | (563 | ) |   |
| Net periodic benefit  cost      |       |                                                       | $          | 38                                                         |       |                                                      |       | $                                                         | 22         |   |   |   | $ | 115 |   |   |   | $ | 66 |   |   |

                                                                                                                                                

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**7.**                 Deferred Rent

The Company recognizesfixed minimum rent expense on non-cancelable leases on a straight-line basisover the term of each individual lease including the build-out period. Thedifference between recognized rental expense and amounts payable under thelease is recorded as a deferred lease liability. In addition, the Companyrecognizes landlord allowances as a deferred lease liability, which isamortized over the term of the related lease as a reduction to rent expense.For contingent rent expense based upon sales, the Company estimates annualcontingent rent expense and recognizes a portion each month based on actualsales. At October 28, 2006, January 28, 2006 and October 29, 2005, the deferredlease liability was $54.1 million, $35.1 million, and $33.6 million,respectively, and is reported in deferred rent and other liabilities on theconsolidated balance sheets. The increase in the deferred lease liabilityduring the nine months ended October 28, 2006 is primarily related to the 50new stores opened and 31 stores remodeled during the period.

**8.**                 Income TaxProvision

The income tax provisionsfor interim periods are based upon management’s estimate of the Company’sannualized effective tax rate. Effective tax rates differ from statutoryfederal income tax rates primarily due to provisions for state and local taxes.

**9.      Long-Term Debt and Credit Facilities**

On January 4, 2006, the Company’s creditfacilities were amended to include: (i) an additional $37.5 millionterm loan facility maturing on March 17, 2009 bearing interest at theEurodollar rate plus 2.50% (“January 4, 2006 term loan”),(ii) an extension of the term of the Company’s existing $90.0 millionrevolving credit facility to March 17, 2009 (contains a sub-facility availablefor issuance of letters of credit of up to $75.0 million), and (iii) areduction of certain interest rates under the revolver by as much as50 basis points, depending upon the Company’s financial performance. Usingthe $37.5 million of proceeds from the January 4, 2006 term loanplus $38.0 million of cash on-hand, the Company prepaid in full the$75.0 million term loan entered into on March 16, 2004(“March 16, 2004 term loan”), which was bearing interest at the Eurodollarrate plus 5.00%, and paid $0.5 million in fees related to therefinancing. In connection with the prepayment of the March 16, 2004 termloan, $0.9 million of unamortized deferred financing costs were written-offin the fourth quarter of fiscal year 2005.

As of October 28, 2006, the Company had availabilityunder its revolving credit facility of $73.3 million, net of letters ofcredit outstanding of $9.5 million, as compared to availability of $63.3 million,net of letters of credit outstanding of $16.0 million, as of October 29,2005.

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. The Company pays the lenders under therevolving credit facility a monthly fee on a proportion of the unusedcommitments under that facility at a rate of between 0.25% and 0.50% per year,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.For so long as any default under the revolving credit facility continues, atthe option of the agent or lenders, interest on the revolving loans mayincrease to 4.00% per year above the Eurodollar rate for all Eurodollar rateloans and 2.00% per year above the Prime rate for all Prime rate loans, andinterest on the term loan may increase to the Eurodollar rate plus 4.50% peryear.

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**9.      Long-Term Debt and Credit Facilities(Continued)**

The Company’s credit facilities contain certaincovenants, including restrictions on its ability to pay dividends on its commonstock, incur additional indebtedness and to prepay, redeem or repurchase otherdebt. Subject to such restrictions, the Company may incur more debt for workingcapital, capital expenditures, acquisitions and for other purposes. The termsof  the Company’s credit facilities alsosubject it to certain maintenance covenants in the event its borrowingavailability under its revolving credit facility, plus cash on-hand,falls below $40.0 million. These covenants include maintaining a minimumtrailing twelve-month EBITDA (as defined in the Company’s amended and restatedcredit agreement) and a maximum leverage ratio. This ratio and the calculationof EBITDA under the amended and restated credit agreement are not necessarilycomparable to other similarly titled ratios and measurements of other companiesdue to inconsistencies in the method of calculation. In addition, in the eventthat the Company’s borrowing availability under its revolving credit facility,plus cash on-hand, falls below $50.0 million and it fails tomaintain a minimum trailing twelve-month EBITDA, then the outstanding principalamount of the $37.5 million term loan must be prepaid down to $25.0 million,subject to certain restrictions. The Company is currently in compliance withthe financial covenants 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.

**10.**          NewAccounting Pronouncements

In October 2005, the FASB issued FSP No. FAS13-1, ‘‘Accounting for Rental Costs Incurred during a ConstructionPeriod.’’ The FSP concluded that rental costs associated with ground orbuilding operating leases that are incurred during a construction period shouldbe recognized as rental expense. The rental costs should be included in incomefrom continuing operations. The guidance does not change application of themaximum guarantee test in EITF Issue No. 97-10, ‘‘The Effect ofLessee Involvement in Asset Construction.’’ The guidance in this FSP shall beapplied in the first reporting period beginning after December 15, 2005.Retrospective application in accordance with FASB Statement No. 154,‘‘Accounting Changes and Error Corrections,’’ is permitted but not required; assuch, the Company adopted the provisions of the FSP beginning inFebruary 2006 and is applying them prospectively. The Company currentlyanticipates that the adoption of this pronouncement will result inapproximately $3.3 million of additional rent expense in the currentfiscal year, which prior to the adoption of this pronouncement would have beencapitalized and amortized into depreciation expense on a straight-line basisover the lease term, commencing on a store’s opening date. For the three monthsended October 28, 2006, $1.1 million of rent expense was recognized duringthe construction periods for stores, resulting in an after-tax charge toearnings of $0.6 million, or $0.01 per diluted share. For the nine months endedOctober 28, 2006, $3.1 million of rent expense was recognized during theconstruction periods for stores, resulting in an after-tax charge to earningsof $1.8 million, or $0.03 per diluted share.

In June 2006, the FASB issued InterpretationNo. 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASBStatement No. 109.” This Interpretation clarifies the accounting foruncertain tax positions recognized in a company’s financial statements inaccordance with the provisions of FASB Statement No. 109, “Accounting forIncome Taxes.” This Interpretation prescribes a recognition threshold andmeasurement attribute for the financial statement recognition and measurementof a tax position taken or expected to be taken in a tax return. ThisInterpretation also provides guidance on derecognition of uncertain positions,financial statement classification, accounting for interest and penalties, accountingin interim periods, disclosure, and transition. The Interpretation is effectivefor fiscal years beginning after 

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**10.   New Accounting Pronouncements(Continued)**

December 15, 2006. TheCompany is currently evaluating the impact that the adoption of thisInterpretation will have on its financial position and results of operations.

In September 2006, the FASB issued SFAS No. 157, “FairValue Measurements” (“SFAS No. 157”). SFAS No. 157 establishes a commondefinition for fair value to be applied to US GAAP guidance requiring the useof fair value, establishes a framework for measuring fair value, and expandsthe disclosure about such fair value measurements. SFAS No. 157 is effectivefor fiscal years beginning after November 15, 2007, and interim periods withinthose fiscal years. The Company is currently evaluating the impact that theadoption of this Statement will have on its financial position and results ofoperations.

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)” (“SFAS No.158”). SFAS No. 158 requires recognition of the overfunded or underfundedstatus of defined benefit postretirement plans as an asset or liability in thestatement of financial position and requires companies to recognize changes inthat funded status in comprehensive income in the year in which the changesoccur. SFAS No. 158 also requires measurement of the funded status of a plan asof the date of the statement of financial position. SFAS No. 158 is effectivefor recognition of the funded status of the benefit plans for fiscal yearsending after December 15, 2006 and is effective for the measurement dateprovisions for fiscal years ending after December 15, 2008. The Company iscurrently evaluating the impact that the adoption of this Statement will haveon its financial position and results of operations.

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**ITEM 2.**                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 similar expressions and includereferences to assumptions that the Company believes are reasonable and relateto its future prospects, developments and business strategies. Factors thatcould cause the Company’s actual results to differ materially from thoseexpressed or implied in such forward-looking statements, include, but are notlimited to those discussed under the heading “Item 3. Quantitative and QualitativeDisclosures About Market Risk” in this Quarterly Report on Form 10-Qand: 

·       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;

·       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 theCompany’s vendors;

·       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;

·       theeffects of government regulation;

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·       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 7,2006.

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 *NewYork & Company*merchandise sold exclusively through itsnational network of New York & Company retail stores and, beginning inNovember 2006, on-line at www.nyandcompany.com. The target customers for theCompany’s *New York & Company* merchandise are fashion-conscious,value-sensitive women between the ages of 25 and 45. On July 19,2005, the Company acquired JasmineSola, a Boston-based, privately held women’sretailer of upscale and contemporary apparel, footwear and accessories soldthrough its chain of *JasmineSola*branded retail stores. As of October 28, 2006, the Company operated 560 retailstores in 45 states, including 23 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 its first and fourth quarters.Seasonal fluctuations also affect inventory levels. The Company must carry asignificant amount of inventory, especially before the holiday season sellingperiod.

Net sales for the three months ended October 28,2006 increased 6.5% to $270.9 million, as compared to $254.4 millionfor the three months ended October 29, 2005. Net sales for the nine monthsended October 28, 2006 increased 3.1% to $802.9 million, as compared to $778.9million for the nine months ended October 29, 2005. Comparable store sales increased0.5% for the three months ended October 28, 2006, as compared to a comparablestore sales decrease of 3.1% for the three months ended October 29, 2005.Comparable store sales decreased 4.4% for the nine months ended October 28,2006, as compared to a comparable store sales increase of 0.5% for the ninemonths ended October 29, 2005. Net income for the three months ended October 28,2006 increased to $9.6 million, or $0.16 per diluted share, ascompared to $4.2 million, or $0.07 per diluted share, for the threemonths ended October 29, 2005. Net income for the nine months ended October 28,2006 decreased to $22.1 million, or $0.37 per diluted share, ascompared to $37.9 million, or $0.66 per diluted share, for the ninemonths ended October 29, 2005. For a discussion of the more significantfactors impacting these results, see “Results of Operations” below.

During the nine months ended October 28, 2006, theCompany opened 50 new stores, including eight new JasmineSola stores,closed nine stores and completed 31 remodels, ending the periodoperating 560 stores in 45 states, as compared to 523 stores as of October29, 2005. Total selling square footage as of October 28, 2006 was 3.357 million,as compared to 3.306 million as of October 29, 2005. Capital spending forthe nine months ended October 28, 2006 was $66.1 million, as comparedto $68.6 million for the nine months ended October 29, 2005. The $66.1 millionof capital spending represents $59.9 million related to the constructionof new stores and the remodeling of existing stores and $6.2 millionrelated to non-store capital projects, which principally represent informationtechnology enhancements.

The Company’s balance sheet at October 28,2006 included $23.7 million in cash and $49.0 million of workingcapital, as compared to $30.0 million in cash and $68.6 million ofworking capital at October 29, 2005. The decrease in cash and working capitalcompared to last year was primarily the result of the 

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Company’s capital spendingprogram in addition to the Company using $38.0 million of cash on-handplus $37.5 million of proceeds from the January 4, 2006 term loan toprepay in full a $75.0 million term loan plus $0.5 million of fees incurred inconnection with the refinancing. At October 28, 2006, the Company’s inventorywas $150.4 million, as compared to $136.8 million of inventory at October29, 2005.

Earlier this year theCompany signed a three year agreement with Accretive Commerce for integrated e-commerceoperations. Under the agreement, Accretive Commerce provides an end to endsuite of direct commerce services, including integration of a new e-commerceplatform (in alliance with Art Technology Group, Inc.), order management,order fulfillment, customer care, and channel management services. In November2006, the Company began selling merchandise through its e-commerce internetsite at www.nyandcompany.com.

***General***

*NetSales.**  *Netsales consist of sales from comparable and non-comparable stores. A store isincluded in the comparable store sales calculation after it has completed 13full fiscal months of operation from the store’s original opening date or onceit has been reopened after remodeling. Non-comparable store sales includestores which have not completed 13 full fiscal months of operations, sales fromclosed stores, and sales from stores closed or in temporary locations duringperiods of remodeling. In addition, in a year with 53 weeks, sales in the lastweek of the year are not included in determining comparable store sales. Netsales are recorded when the customer takes possession of the merchandise andthe purchases are paid for, primarily with either cash or credit card. Areserve is provided for projected merchandise returns based on priorexperience.

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 thoseamounts 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.**  *Cost of goods sold, buying and occupancy costsare comprised of direct inventory costs for merchandise sold, distribution,payroll and related costs for design, sourcing, production, merchandising,planning and allocation personnel, and store occupancy and related costs,including, subsequent to fiscal year 2005, occupancy costs incurred during aperiod of construction prior to store opening.

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

*Selling, General andAdministrative Expenses.**  **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 and nine monthsended October 28, 2006 and October 29, 2005:

| ** **                                      | ** ** | **Three months  ended  October 28,  2006** | ** ** | **Three months  ended  October 29,  2005** | ** ** | **Nine months  ended  October 28,  2006** | ** ** | **Nine months  ended  October 29,  2005** | ** ** |
|-------------------------------------------------|------------|------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------------|------------|
| Net sales                                       |       |                                                 | 100.0      | %                                                    |       |                                                | 100.0      | %                                                   |       |   | 100.0 | % |   |   | 100.0 | % |   |
| Cost of goods  sold, buying and occupancy costs |       |                                                 | 66.8       | %                                                    |       |                                                | 70.7       | %                                                   |       |   | 69.5 | % |   |   | 67.3 | % |   |
| Gross profit                                    |       |                                                 | 33.2       | %                                                    |       |                                                | 29.3       | %                                                   |       |   | 30.5 | % |   |   | 32.7 | % |   |
| Selling, general  and administrative expenses   |       |                                                 | 27.1       | %                                                    |       |                                                | 25.9       | %                                                   |       |   | 25.7 | % |   |   | 24.0 | % |   |
| Operating income                                |       |                                                 | 6.1        | %                                                    |       |                                                | 3.4        | %                                                   |       |   | 4.8 | % |   |   | 8.7 | % |   |
| Interest expense,  net                          |       |                                                 | 0.2        | %                                                    |       |                                                | 0.7        | %                                                   |       |   | 0.2 | % |   |   | 0.6 | % |   |
| Income before income taxes                      |       |                                                 | 5.9        | %                                                    |       |                                                | 2.7        | %                                                   |       |   | 4.6 | % |   |   | 8.1 | % |   |
| Provision for  income taxes                     |       |                                                 | 2.4        | %                                                    |       |                                                | 1.1        | %                                                   |       |   | 1.8 | % |   |   | 3.2 | % |   |
| Net income                                      |       |                                                 | 3.5        | %                                                    |       |                                                | 1.6        | %                                                   |       |   | 2.8 | % |   |   | 4.9 | % |   |

 

| ** **                                    | ** ** | **Three months  ended  October 28,  2006**                              | ** ** | **Three months  ended  October 29,  2005** | ** ** | **Nine months  ended  October 28,  2006** | ** ** | **Nine months  ended  October 29,  2005** | ** ** |
|-----------------------------------------------|------------|-----------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                    | ** ** | **(Dollars in thousands, except square foot data)** | ** ** |
| **Selected  operating data:**                 | ** ** |                                                                              | ** ** | ** **                                           |       |                                                | ** ** | ** **                                          |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Total net sales  growth                       |       |                                                                              | 6.5        | %                                                    |       |                                                | 5.0        | %                                                   |       |   | 3.1 | % |   |   | 5.7 | % |   |
| Comparable store  sales increase / (decrease) |       |                                                                              | 0.5        | %                                                    |       |                                                | (3.1       | )%                                                  |       |   | (4.4 | )% |   |   | 0.5 | % |   |
| Net sales per  average selling square foot(1) |       |                                                                              | $          | 82                                                   |       |                                                |       | $                                                   | 78         |   |   |   | $ | 243 |   |   |   | $ | 240 |   |   |
| Net sales per  average store(2)               |       |                                                                              | $          | 493                                                  |       |                                                |       | $                                                   | 494        |   |   |   | $ | 1,487 |   |   |   | $ | 1,558 |   |   |
| Average selling square  footage per store(3)  |       |                                                                              | 5,995      |                                                 |       |                                                | 6,322      |                                                |       |   | 5,995 |   |   |   | 6,322 |   |   |

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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  October 28, 2006** | ** ** | **Three months  ended  October 29, 2005** | ** ** | **Nine months  ended  October 28, 2006** | ** ** | **Nine months  ended  October 29, 2005** | ** ** |
|--------------------------------------------------------|------------|----------------------------------------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                             | ** ** | **Store  Count**                                         | ** ** | **Selling  Square  Feet**                                | ** ** | **Store  Count**                                        | ** ** | **Selling  Square  Feet**                               | ** ** | **Store  Count** | ** ** | **Selling  Square  Feet** | ** ** | **Store  Count** | ** ** | **Selling  Square  Feet** | ** ** |
| **Store count and selling square  feet:**              | ** ** |                                                     | ** ** | ** **                                               |       | ** **                                              |       |                                                    | ** ** | ** ** |   | ** ** |   |   | ** ** | ** ** |   | ** ** |   |   | ** ** | ** ** |   | ** ** |   |
| Stores open,  beginning of period                      |       |                                                     | 537        |                                                     |       | 3,280,075                                               |       |                                                    | 506        |   |   | 3,237,471 |   |   | 519 |   |   | 3,254,465 |   |   | 476 |   |   | 3,189,770 |   |
| New stores                                             |       |                                                     | 26         |                                                     |       | 113,383                                                 |       |                                                    | 19         |   |   | 83,922 |   |   | 50 |   |   | 221,012 |   |   | 40 |   |   | 176,338 |   |
| Acquired stores                                        |       |                                                     | —     |                                                     |       | —                                                  |       |                                                    | —     |   |   | — |   |   | — |   |   | — |   |   | 14 |   |   | 38,760 |   |
| Closed stores                                          |       |                                                     | (3         | )                                                        |       | (23,085                                                 | )          |                                                    | (2         | ) |   | (15,691 | ) |   | (9 | ) |   | (58,641 | ) |   | (7 | ) |   | (42,739 | ) |
| Net impact of  remodeled stores on selling square feet |       |                                                     | —     |                                                     |       | (13,111                                                 | )          |                                                    | —     |   |   | 548 |   |   | — |   |   | (59,574 | ) |   | — |   |   | (55,879 | ) |
| Stores open, end of period                             |       |                                                     | 560        |                                                     |       | 3,357,262                                               |       |                                                    | 523        |   |   | 3,306,250 |   |   | 560 |   |   | 3,357,262 |   |   | 523 |   |   | 3,306,250 |   |

 

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***Three Months EndedOctober 28, 2006 Compared to Three Months Ended October 29, 2005***

*NetSales.**  *Net sales for the three months ended October28, 2006 increased 6.5% to $270.9 million, as compared to $254.4 millionfor the three months ended October 29, 2005. The increase is attributable to a$15.3 million increase in non-comparable store sales, primarily driven bynew stores and acquired JasmineSola stores, which entered the comparable storesales base in September 2006. Also contributing to the increase in sales is a $1.2 million,or 0.5%, increase in comparable store sales. In the comparable store base,average dollar sales per transaction increased 4.4% as compared to the same periodlast year while the number of transactions per average store decreased 3.7%, ascompared to the same period last year.

*GrossProfit.**  *Gross profit increased $15.4 millionto $89.9 million, or 33.2% of net sales, for the three months ended October28, 2006, as compared to $74.5 million, or 29.3% of net sales, forthe three months ended October 29, 2005. The increase in gross profit isprimarily due to an increase in net sales and a reduction in merchandisemarkdowns and cancellations for the three months ended October 28, 2006, ascompared to the same period last year. Buying and occupancy costs increased asa percentage of net sales primarily due to increases in real estate costsrelated to the impact of new and remodeled stores. Also contributing to theincrease in buying and occupancy costs is the recognition of rental expenseduring the construction period for new stores beginning in February 2006,with the adoption of FSP No. FAS 13-1, “Accounting for Rental CostsIncurred during a Construction Period.” 

*Selling,General and Administrative Expenses.**  *Selling,general and administrative expenses increased $7.6 million to $73.4 million,or 27.1% of net sales, for the three months ended October 28, 2006, ascompared to $65.8 million, or 25.9% of net sales, for the three monthsended October 29, 2005. As a percentage of net sales, selling, general andadministrative expenses increased for the three months ended October 28, 2006,as compared to the same period last year, primarily due to an increase in storeselling expenses and an increase in incentive compensation costs resulting fromthe improvement in operating income for the three months ended October 28,2006, as compared to the same period last year.

*OperatingIncome.*   The increase in gross profit partiallyoffset by higher selling, general and administrative expenses, as explainedabove, resulted in a $7.8 million increase in operating income to $16.5 million,or 6.1% of net sales, for the three months ended October 28, 2006, as comparedto $8.7 million, or 3.4% of net sales, for the three months ended October29, 2005.

*InterestExpense, Net.*   Net interest expense decreased $1.2 millionto $0.5 million, or 0.2% of net sales, for the three months ended October28, 2006, as compared to $1.7 million, or 0.7% of net sales, for thethree months ended October 29, 2005. The decrease in net interest expense isdue to a reduction in borrowings and interest rates obtained through theCompany’s prepayment of a $75.0 million term loan on January 4, 2006using proceeds from a new $37.5 million term loan facility plus cash on-hand.

*Provisionfor Income Taxes.*   The effective tax rate for thethree months ended October 28, 2006 was 40.3%, as compared to 40.5% forthe three months ended October 29, 2005.

*Net Income.*   Forthe reasons discussed above, net income increased $5.4 million to $9.6 million,or 3.5% of net sales, for the three months ended October 28, 2006, ascompared to $4.2 million, or 1.6% of net sales, for the three months ended October29, 2005.

***Nine Months EndedOctober 28, 2006 Compared to Nine Months Ended October 29, 2005***

*NetSales.**  *Net sales for the nine months ended October28, 2006 increased 3.1% to $802.9 million, as compared to $778.9 millionfor the nine months ended October 29, 2005. The increase is attributable to a $56.3 millionincrease in non-comparable store sales, primarily driven by new stores andacquired JasmineSola stores, which entered the comparable store sales base inSeptember 2006. The increase in non-comparable store sales was partially offsetby a $32.3 million, or 4.4%, decrease in comparable store 

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sales. In the comparablestore base, average dollar sales per transaction increased 0.7% while thenumber of transactions per average store decreased 5.0%, as compared to thesame period last year.

*GrossProfit.**  *Gross profit decreased $10.2 millionto $244.6 million, or 30.5% of net sales, for the nine months ended October28, 2006, as compared to $254.8 million, or 32.7% of net sales, forthe nine months ended October 29, 2005. The decrease in gross profit isprimarily attributable to the decrease in comparable store sales combined withan increase in buying and occupancy costs for the nine months ended October 28,2006, as compared to the same period last year. Buying and occupancy costsincreased as a percentage of net sales primarily due to increases in realestate costs related to the impact of new and remodeled stores combined withthe impact of lower comparable store sales. Also contributing to the increasein buying and occupancy costs is the recognition of rental expense during theconstruction period for new stores beginning in February 2006, with theadoption of FSP No. FAS 13-1, “Accounting for Rental Costs Incurredduring a Construction Period.” As a percentage of net sales, the increase inbuying and occupancy costs was partially offset by a decrease in merchandisemarkdowns and cancellations for the nine months ended October 28, 2006, ascompared to the same period last year.

*Selling,General and Administrative Expenses.**  *Selling,general and administrative expenses increased $19.1 million to $206.1 million,or 25.7% of net sales, for the nine months ended October 28, 2006, as comparedto $187.0 million, or 24.0% of net sales, for the nine months ended October29, 2005. As a percentage of net sales, selling, general and administrativeexpenses increased for the nine months ended October 28, 2006, as compared tothe same period last year, due in large part to a decrease in comparable storesales and a slight increase in store selling expenses. 

*OperatingIncome.*   The decrease in gross profit and higherselling, general and administrative expenses, as explained above, resulted in a$29.3 million decrease in operating income to $38.5 million, or 4.8%of net sales, for the nine months ended October 28, 2006, as compared to $67.8 million,or 8.7% of net sales, for the nine months ended October 29, 2005.

*InterestExpense, Net.*   Net interest expense decreased $3.0 millionto $1.4 million, or 0.2% of net sales, for the nine months ended October28, 2006, as compared to $4.4 million, or 0.6% of net sales, for the ninemonths ended October 29, 2005. The decrease in net interest expense is dueto a reduction in borrowings and interest rates obtained through the Company’sprepayment of a $75.0 million term loan on January 4, 2006 usingproceeds from a new $37.5 million term loan facility plus cash on-hand.

*Provisionfor Income Taxes.*   The effective tax rate for thenine months ended October 28, 2006 was 40.3%, as compared to 40.2% for thenine months ended October 29, 2005.

*Net Income.*   Forthe reasons discussed above, net income decreased $15.8 million to $22.1 million,or 2.8% of net sales, for the nine months ended October 28, 2006, as comparedto $37.9 million, or 4.9% of net sales, for the nine months ended October29, 2005.

**Non-GAAP FinancialMeasure**

The Company has provided anon-GAAP financial measure to adjust net income for the three and nine monthsended October 28, 2006 and October 29, 2005. This information reflects, on anon-GAAP adjusted basis, the Company’s net income before interest expense, net;provision for income taxes; and depreciation and amortization (“EBITDA”). Thecalculation for EBITDA is provided to enhance the user’s understanding of theCompany’s operating results. EBITDA is provided because management believes itis an important measure of financial performance commonly used to determine thevalue of companies and to define standards for borrowing from institutionallenders. The non-GAAP financial information should be considered in additionto, not as an alternative to, net income, as an indicator of the Company’soperating performance, and cash flows from operating activities, as a measureof the 

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Company’sliquidity, as determined in accordance with accounting principles generallyaccepted in the United States. The Company may calculate EBITDA differentlythan other companies.

**Reconciliationof Net Income to EBITDA**

| ** **                    | ** ** | **Three months  ended  October 28, 2006** | ** ** | **Three months  ended  October 29, 2005** | ** ** | **Nine months  ended  October 28, 2006** | ** ** | **Nine months  ended  October 29, 2005** | ** ** |
|-------------------------------|------------|----------------------------------------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                    | ** ** | **Amounts in  thousands**                           | ** ** | **As a % of  net sales**             | ** ** | **Amounts in  thousands**                          | ** ** | **As a % of  net sales**            | ** ** | **Amounts in  thousands** | ** ** | **As a % of  net sales** | ** ** | **Amounts in  thousands** | ** ** | **As a % of  net sales** | ** ** |
| Net income                    |       |                                                     | $          | 9,593                                                    |       |                                                    |       | 3.5                                                     | %          |   |   | $ | 4,154 |   |   |   | 1.6 | % |   |   | $ | 22,149 |   |   |   | 2.8 | % |   |   | $ | 37,884 |   |   |   | 4.9 | % |   |
| Add back:                     |       |                                                     |       |                                                     |       |                                                    |       |                                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense,  net        |       |                                                     | 471        |                                                     |       |                                                    | 0.2        | %                                                       |       |   | 1,675 |   |   |   | 0.7 | % |   |   | 1,438 |   |   |   | 0.2 | % |   |   | 4,385 |   |   |   | 0.6 | % |   |
| Provision for  income taxes   |       |                                                     | 6,480      |                                                     |       |                                                    | 2.4        | %                                                       |       |   | 2,833 |   |   |   | 1.1 | % |   |   | 14,957 |   |   |   | 1.8 | % |   |   | 25,517 |   |   |   | 3.2 | % |   |
| Depreciation and amortization |       |                                                     | 8,062      |                                                     |       |                                                    | 3.0        | %                                                       |       |   | 6,597 |   |   |   | 2.6 | % |   |   | 23,713 |   |   |   | 3.0 | % |   |   | 17,638 |   |   |   | 2.3 | % |   |
| EBITDA                        |       |                                                     | $          | 24,606                                                   |       |                                                    |       | 9.1                                                     | %          |   |   | $ | 15,259 |   |   |   | 6.0 | % |   |   | $ | 62,257 |   |   |   | 7.8 | % |   |   | $ | 85,424 |   |   |   | 11.0 | % |   |

 

**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 cash flow.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 October 28,2006.

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

| ** **                 | ** ** | **October 28,  2006**           | ** ** | **January 28,  2006** | ** ** | **October 29,  2005** | ** ** |
|----------------------------|------------|--------------------------------------|------------|----------------------------|------------|----------------------------|------------|
| ** **                 | ** ** | **(Amounts in thousands)** | ** ** |
| Cash and cash  equivalents |       |                                 | $          | 23,732                     |       |                       |       | $ | 57,436 |   |   |   | $ | 30,027 |   |   |
| Working capital            |       |                                 | $          | 49,004                     |       |                       |       | $ | 47,701 |   |   |   | $ | 68,567 |   |   |

 

| ** **                                 | ** ** | **Nine months  ended  October 28,  2006** | ** ** | **Nine months  ended  October 29,  2005** | ** ** |
|--------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                 | ** ** | **(Amounts in thousands)**                | ** ** |
| Net cash provided  by operating activities |       |                                                | $          | 26,419                                              |       |   |   | $ | 31,187 |   |   |
| Net cash used in  investing activities     |       |                                                | $          | (66,084                                             | )          |   |   | $ | (89,916 | ) |   |
| Net cash provided by  financing activities |       |                                                | $          | 5,961                                               |       |   |   | $ | 3,595 |   |   |

 

**Operating Activities**

Net cash provided byoperating activities was $26.4 million for the nine months ended October 28,2006, as compared to net cash provided by operating activities of $31.2 millionfor the nine months ended October 29, 2005. The decrease in cash flowprovided by operating activities for the nine months ended October 28,2006, as compared to the nine months ended October 29, 2005, isprimarily related to a decrease in net income, changes in accounts receivable,inventories, prepaid expenses and accounts payable partially offset by changesin accrued expenses, income taxes payable, and other assets and liabilities.Cash provided by other assets and liabilities for the nine months ended October 28, 2006and October 29, 2005 includes $17.0 million and $14.2 millionof landlord allowances, respectively.

**InvestingActivities**

Cash used in investing activities was $66.1 millionfor the nine months ended October 28, 2006, as compared to $89.9 millionof cash used in investing activities for the nine months ended October 29,2005. Cash used in investing activities for the nine months ended October 28,2006 represents capital expenditures primarily related to the construction ofnew stores and the remodeling of existing stores. Cash used in investingactivities for the nine months ended October 29, 2005 represents $68.6 millionof capital expenditures primarily related to the construction of new stores andthe remodeling of existing stores and $21.4 million used to acquireJasmineSola.

The Company opened 50 newstores and completed 31 remodels in the nine months ended October 28,2006, as compared to 40 new stores and 40 remodels in the nine months ended October 29,2005. The Company plans to have opened 61 new stores, including nine JasmineSolastores, in fiscal year 2006, ending the year operating 566 stores. TheCompany’s future capital requirements will depend primarily on the number ofnew stores it opens, the number of existing stores it remodels and the timingof these expenditures.

**FinancingActivities**

Net cash provided byfinancing activities was $6.0 million for the nine months ended October 28,2006, as compared to net cash provided by financing activities of $3.6 millionfor the nine months ended October 29, 2005. Net cash provided by financingactivities for the nine months ended October 28, 2006 representsproceeds of $2.3 million from the public offering of common stock,consummated on January 31, 2006; the payment of $0.4 million in feesand expenses related to the offering; quarterly payments against the$37.5 million January 4, 2006 term loan totaling $4.5 million; and $8.6million of proceeds from the exercise of stock options and the related taxbenefit to the Company. Net cash provided 

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byfinancing activities for the nine months ended October 29, 2005 consisted of proceedsfrom the exercise of stock options and the related tax benefit to the Company offsetby the repayment of debt outstanding under the terminated JasmineSola creditfacility.

**Long-Term Debt andCredit Facilities**

On January 4, 2006, the Company’s creditfacilities were amended to include: (i) an additional $37.5 millionterm loan facility maturing on March 17, 2009 bearing interest at theEurodollar rate plus 2.50%, (ii) an extension of the term of the Company’sexisting $90.0 million revolving credit facility to March 17, 2009(contains a sub-facility available for the issuance of letters of credit of upto $75.0 million), and (iii) a reduction of certain interest rates underthe revolver by as much as 50 basis points, depending upon the Company’sfinancial performance. Using the $37.5 million of proceeds from theJanuary 4, 2006 term loan plus $38.0 million of cash on-hand, theCompany prepaid in full the $75.0 million March 16, 2004 term loan, whichwas bearing interest at the Eurodollar rate plus 5.00%, and paid $0.5 millionin fees related to the refinancing. In connection with the prepayment of theMarch 16, 2004 term loan, $0.9 million of unamortized deferredfinancing costs were written-off in the fourth quarter of fiscalyear 2005.

As of October 28, 2006, the Company had availabilityunder its revolving credit facility of $73.3 million, net of letters ofcredit outstanding of $9.5 million, as compared to availability of $63.3 million,net of letters of credit outstanding of $16.0 million, as of October 29,2005.

The revolving loans underthe credit facilities bear interest, at the Company’s option, either at a floatingrate equal to the Eurodollar rate plus a margin of between 1.00% and 2.00% peryear, depending upon the Company’s financial performance, or the Prime rate.The Company pays the lenders under the revolving credit facility a monthly feeon outstanding letters of credit at a rate of between 1.00% and 1.50% per year,depending upon the Company’s financial performance. The Company pays thelenders under the revolving credit facility a monthly fee on a proportion ofthe unused commitments under that facility at a rate of between 0.25% and 0.50%per year, depending upon the Company’s financial performance. The term loanbears interest at a floating rate equal to the Eurodollar rate plus 2.50% peryear. For so long as any default under the revolving credit facility continues,at the 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 AccountingPolicies**

The preparation of financial statements in conformitywith generally accepted accounting principles in the United States requiresmanagement to make estimates and assumptions that impact the amounts 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.

*InventoryValuation.*   Inventories are principally valued atthe lower of average cost or market, on a weighted average cost basis, usingthe retail method. The Company records a charge to cost of goods sold, buyingand occupancy costs for all inventory on-hand when a permanent retailprice reduction is reflected in its stores. In addition, management makesestimates and judgments regarding, among other things, initial markup,markdowns, future demand and market conditions, all of which significantlyimpact the ending inventory valuation. If actual future demand or marketconditions are different than those 

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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 andmanagement’s operating projections.

*Impairmentof Long-Lived Assets.*   The Company evaluateslong-lived assets in accordance with SFAS No. 144, “Accounting forthe Impairment or Disposal of Long-Lived Assets” (“SFAS 144”). Long-livedassets are evaluated for recoverability in accordance with SFAS 144 wheneverevents or changes in circumstances indicate that an asset may have beenimpaired. In evaluating an asset for recoverability, the Company estimates thefuture cash flow expected to result from the use of the asset and eventualdisposition. If the expected future undiscounted cash flow is less than thecarrying amount of the asset, an impairment loss, equal to the excess of the carryingamount over the fair value of the asset, is recognized. An impairment losscould have a material adverse impact on the Company’s results of operations.The Company’s evaluation for the nine months ended October 28,2006 resulted in no material asset impairment charge.

*Goodwilland Other Intangible Assets.  **SFAS No. 142, “Goodwill and OtherIntangible Assets,” prohibits the amortization of goodwill and intangibleassets with indefinite lives. The Company’s intangible assets relate primarilyto the New York & Company and JasmineSola trademarks and the goodwillassociated with the acquisition of JasmineSola on July 19, 2005. Thetrademarks were initially valued using the ‘‘relief from royalty method” andwere determined to have indefinite lives by an independent appraiser. TheCompany tests for impairment of intangible assets annually as required by thisStatement. Management’s estimate of future cash flow is based on historicalexperience, knowledge, and market data. These estimates can be affected byfactors such as those outlined in ‘‘Special Note Regarding Forward*-*Looking Statements and Risk Factors.”An impairment loss could have a material adverse impact on the Company’sresults of operations. The fair value assigned to the JasmineSola trademarksand goodwill is $17.2 million and $11.1 million, respectively.*

*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.

**New Accounting Pronouncements**

In October 2005, the FASB issued FSP No. FAS13-1, “Accounting for Rental Costs Incurred during a ConstructionPeriod.” The FSP concluded that rental costs associated with ground or buildingoperating leases that are incurred during a construction period should berecognized as rental expense. The rental costs should be included in incomefrom continuing operations. The guidance does not change application of themaximum guarantee test in EITF Issue No. 97-10, “The Effect ofLessee Involvement in Asset Construction.” The guidance in this FSP shall beapplied in the first reporting period beginning after December 15, 2005.Retrospective application in accordance with FASB Statement No. 154,“Accounting Changes and Error Corrections,” is permitted but not required; assuch, the Company adopted the provisions of the FSP beginning inFebruary 2006 and is applying them prospectively. The Company currentlyanticipates that the adoption of this pronouncement will result inapproximately $3.3 million of additional rent expense in the currentfiscal year, which prior to the adoption of this pronouncement would have beencapitalized and amortized into depreciation expense on a straight-line basisover the lease term, commencing on a store’s opening date. For the three monthsended October 28, 2006, $1.1 million of rent expense was recognized duringthe construction periods for stores, resulting in an after-tax charge to 

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earnings of $0.6 million,or $0.01 per diluted share. For the nine months ended October 28,2006, $3.1 million of rent expense was recognized during the constructionperiods for stores, resulting in an after-tax charge to earnings of $1.8 million,or $0.03 per diluted share.

In June 2006, the FASB issued InterpretationNo. 48, “Accounting for Uncertainty in Income Taxes—an interpretation ofFASB Statement No. 109.” This Interpretation clarifies the accounting foruncertain tax positions recognized in a company’s financial statements inaccordance with the provisions of FASB Statement No. 109, “Accountingfor Income Taxes.” This Interpretation prescribes a recognition threshold andmeasurement attribute for the financial statement recognition and measurementof a tax position taken or expected to be taken in a tax return. ThisInterpretation also provides guidance on derecognition of uncertain positions,financial statement classification, accounting for interest and penalties,accounting in interim periods, disclosure, and transition. The Interpretationis effective for fiscal years beginning after December 15, 2006. TheCompany is currently evaluating the impact that the adoption of thisInterpretation will have on its financial position and results of operations.

In September 2006, the FASB issued SFAS No. 157, “FairValue Measurements” (“SFAS No. 157”). SFAS No. 157 establishes a commondefinition for fair value to be applied to US GAAP guidance requiring the useof fair value, establishes a framework for measuring fair value, and expandsthe disclosure about such fair value measurements. SFAS No. 157 is effective forfiscal years beginning after November 15, 2007, and interim periods withinthose fiscal years. The Company is currently evaluating the impact that theadoption of this Statement will have on its financial position and results ofoperations.

In September 2006, theFASB 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”). SFAS No. 158 requires recognition of theoverfunded or underfunded status of defined benefit postretirement plans as anasset or liability in the statement of financial position and requirescompanies to recognize changes in that funded status in comprehensive income inthe year in which the changes occur. SFAS No. 158 also requires measurement ofthe funded status of a plan as of the date of the statement of financialposition. SFAS No. 158 is effective for recognition of the funded status of thebenefit plans for fiscal years ending after December 15, 2006 and is effectivefor the measurement date provisions for fiscal years ending after December 15,2008. The Company is currently evaluating the impact that the adoption of this Statementwill have on its financial position and results of operations.

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

*InterestRates.*   The Company’s market risks relateprimarily to changes in interest rates. The Company’s credit facilities carryfloating interest rates that are tied to the Eurodollar rate and the Prime rateand therefore, the consolidated statements of income and the consolidatedstatements of cash flows will be exposed to changes in interest rates. A 1.0%interest rate increase would increase interest expenses by approximately $0.3million annually. The Company historically has not engaged in interest ratehedging 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.

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**ITEM 4.**                CONTROLSAND PROCEDURES

(a)   *Disclosure Controls and Procedures*.   TheCompany’s management, with the participation of the Company’s PrincipalExecutive Officer and Principal Financial Officer, has evaluated theeffectiveness of the Company’s disclosure controls and procedures (as such termis defined in Rules 13a-15(e) and 15d-15(e) underthe Securities Exchange Act of 1934, as amended) as of the end of the periodcovered by this Quarterly Report. Based on such evaluation, the Company’sPrincipal Executive Officer and Principal Financial Officer have concludedthat, as of the end of such period, the Company’s disclosure controls andprocedures are effective.

(b)   *Internal Controls Over Financial Reporting.*   Therehave not been any changes in the Company’s internal controls over financialreporting (as such term is defined in Rules 13a-15(f) and 15d-15(f)under the Securities Exchange Act of 1934, as amended) during the fiscalquarter to which this report relates that have materially affected, or arereasonably likely to materially affect, the Company’s internal controls overfinancial reporting.

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**PART II.**

**OTHER INFORMATION**

**ITEM 1.**                LEGALPROCEEDINGS

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 7,2006.

**ITEM 1A.**        RISKFACTORS

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 7, 2006.

**ITEM 2.**                UNREGISTEREDSALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

**ITEM 3.**                DEFAULTSUPON SENIOR SECURITIES

None.

**ITEM 4.**                SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

**ITEM 5.**                OTHERINFORMATION

None.

**ITEM 6.**                EXHIBITS

The following exhibits arefiled 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:                                    | * * | *Chief Operating Officer and  Chief Financial Officer  (Principal Financial Officer)* |
|   |   | Dated:                                  |   | December 7, 2006 |

 

 

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