Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549



FORM 10-Q

ý

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934for the quarterly period ended October 30, 2010ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934for the transition period from            to            .


COMMISSION FILE NUMBER: 1-32315

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

DELAWARE(State of incorporation)

33-1031445(I.R.S. Employer Identification No.)450 West 33rd Street
5th Floor
New York, New York 10001(Address of Principal Executive Offices,
including Zip Code)

(212) 884-2000(Registrant's Telephone Number,
Including Area Code)


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

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

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

Large accelerated filer o

Accelerated filer ý

Non-accelerated filer o (Do not check if a
smaller reporting company)

Smaller reporting company o


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

As of November 26, 2010, the registrant had 60,011,158 shares of common stock outstanding.



---



TABLE OF CONTENTS



PART I. FINANCIAL INFORMATIONItem 1.

Financial Statements


1Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations


13Item 3.

Quantitative and Qualitative Disclosures About Market Risk


24Item 4.

Controls and Procedures


25PART II. OTHER INFORMATIONItem 1.

Legal Proceedings


26Item 1A.

Risk Factors


26Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds


26Item 3.

Defaults Upon Senior Securities


26Item 4.

Removed and Reserved


26Item 5.

Other Information


26Item 6.

Exhibits


27


i

---





Table of Contents

PART I.    FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

New York & Company, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

(Amounts in thousands, except per share amounts)

Three months
ended
October 30,
2010

Three months
ended
October 31,
2009

Nine months
ended
October 30,
2010

Nine months
ended
October 31,
2009Net sales

$
238,221

$
227,949

$
718,520

$
708,629Cost of goods sold, buying and occupancy costs


171,767


170,219


573,451


535,953Gross profit


66,454


57,730


145,069


172,676Selling, general and administrative expenses


70,354


68,198


222,466


199,566Restructuring charges


100


458


1,318


458Operating loss


(4,000
)

(10,926
)

(78,715
)

(27,348
)Interest expense, net of interest income of $12, $33, $38, and $110, respectively


190


179


540


568Loss from continuing operations before income taxes


(4,190
)

(11,105
)

(79,255
)

(27,916
)(Benefit) provision for income taxes


(6,044
)

(4,803
)

12,223


(11,897
)Income (loss) from continuing operations


1,854


(6,302
)

(91,478
)

(16,019
)Income from discontinued operations, net of taxes











3Net income (loss)

$
1,854

$
(6,302
)
$
(91,478
)
$
(16,016
)Basic earnings (loss) per share:Basic earnings (loss) per share from continuing operations

$
0.03

$
(0.11
)
$
(1.54
)
$
(0.27
)Basic earnings per share from discontinued operations











Basic earnings (loss) per share

$
0.03

$
(0.11
)
$
(1.54
)
$
(0.27
)Diluted earnings (loss) per share:Diluted earnings (loss) per share from continuing operations

$
0.03

$
(0.11
)
$
(1.54
)
$
(0.27
)Diluted earnings per share from discontinued operations











Diluted earnings (loss) per share

$
0.03

$
(0.11
)
$
(1.54
)
$
(0.27
)Weighted average shares outstanding:Basic shares of common stock


59,502


59,161


59,412


59,508Diluted shares of common stock


60,315


59,161


59,412


59,508


See
accompanying notes.

1

---



Table of Contents

New York & Company, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Amounts in thousands, except per share amounts)

October 30,
2010

January 30,
2010

October 31,
2009(Unaudited)

(Audited)

(Unaudited)AssetsCurrent assets:Cash and cash equivalents

$
22,461

$
87,296

$
39,297Accounts receivable


17,708


9,447


14,194Income taxes receivable


8,943


3,000


4,947Inventories, net


112,556


87,059


117,438Prepaid expenses


20,868


22,608


23,229Other current assets


1,195


1,417


2,506Current assets of discontinued operations


108


108


108Total current assets


183,839


210,935


201,719Property and equipment, net


151,756


187,079


194,868Intangible assets


14,879


14,879


14,879Deferred income taxes


3,647


22,637


21,926Other assets


741


997


1,086Total assets

$
354,862

$
436,527

$
434,478Liabilities and stockholders' equityCurrent liabilities:Current portionlong-term debt

$
6,000

$
6,000

$
6,000Short-term borrowings


9,000





Accounts payable


84,091


72,019


79,989Accrued expenses


53,860


58,932


51,443Income taxes payable


2,073


991


Deferred income taxes


3,647


4,774


2,774Current liabilities of discontinued operations


265


265


265Total current liabilities


158,936


142,981


140,471Long-term debt, net of current portion


3,000


7,500


9,000Deferred rent


68,738


72,020


73,203Other liabilities


5,582


5,862


7,101Total liabilities


236,256


228,363


229,775Stockholders' equity:Common stock, voting, par value $0.001; 300,000 shares authorized; 60,011, 59,396 and 59,306 shares issued and outstanding at October 30, 2010,
January 30, 2010, and October 31, 2009, respectively


60


60


60Additional paid-in capital


156,415


154,495


153,950Retained (deficit) earnings


(32,801
)

58,677


56,142Accumulated other comprehensive loss


(1,671
)

(1,671
)

(2,052
)Treasury stock at cost; 1,000 shares at October 30, 2010, January 30, 2010 and October 31, 2009


(3,397
)

(3,397
)

(3,397
)Total stockholders' equity


118,606


208,164


204,703Total liabilities and stockholders' equity

$
354,862

$
436,527

$
434,478


See
accompanying notes.

2

---



Table of Contents

New York & Company, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(Amounts in thousands)

Nine months
ended
October 30, 2010

Nine months
ended
October 31, 2009Operating activitiesNet loss

$
(91,478
)
$
(16,016
)Less: Income from discontinued operations, net of taxes





3Loss from continuing operations


(91,478
)

(16,019
)Adjustments to reconcile net loss to net cash (used in) provided by operating activities of continuing operations:Depreciation and amortization


31,165


31,383Loss from impairment charges


16,283


Amortization of deferred financing costs


162


162Share-based compensation expense


1,829


1,387Deferred income taxes


17,863


(6,275
)Changes in operating assets and liabilities:Accounts receivable


(8,261
)

(2,201
)Income taxes receivable


(5,943
)

5,255Inventories, net


(25,497
)

(12,577
)Prepaid expenses


1,740


1,381Accounts payable


12,072


11,558Accrued expenses


(5,072
)

(9,678
)Income taxes payable


1,082


Deferred rent


(3,282
)

(2,645
)Other assets and liabilities


(36
)

(142
)Net cash (used in) provided by operating activities of continuing operations


(57,373
)

1,589Investing activitiesCapital expenditures


(12,989
)

(8,903
)Proceeds from sale of fixed assets


936


Net cash used in investing activities of continuing operations


(12,053
)

(8,903
)Financing activitiesProceeds from borrowings under the revolving credit facility


9,000


Repayment of debt


(4,500
)

(4,500
)Purchase of treasury stock





(3,417
)Proceeds from exercise of stock options


91


74Excess tax benefit from exercise of stock options





179Net cash provided by (used in) financing activities of continuing operations


4,591


(7,664
)Cash flows from discontinued operationsOperating cash flows





(6
)Investing cash flows





Financing cash flows





Net cash used in discontinued operations





(6
)Net decrease in cash and cash equivalents


(64,835
)

(14,984
)Cash and cash equivalents at beginning of period (including cash at discontinued operations of $0 and $1, respectively)


87,296


54,281Cash and cash equivalents at end of period (continuing operations only)

$
22,461

$
39,297


See accompanying notes.

3

---



Table of Contents

New York & Company, Inc.

Notes to Condensed Consolidated Financial Statements

October 30, 2010

(Unaudited)

1. Organization and Basis of Presentation

New York & Company, Inc. (together with its subsidiaries, collectively the "Company") is a leading specialty retailer of women's fashion apparel and accessories offering
"NY Style" at Great Deals. The Company's proprietary branded New York & Company® merchandise is sold exclusively through its national network of retail stores and
E-commerce store atwww.nyandcompany.com. The target customers for the Company's merchandise are fashion-conscious, value-sensitive women
between the ages of 25 and 45. As of October 30, 2010, the Company operated 579 stores in 43 states.

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

The
condensed consolidated financial statements as of October 30, 2010 and October 31, 2009 and for the 13 weeks ("three months") and 39 weeks ("nine months")
ended October 30, 2010 and October 31, 2009 are unaudited and are presented pursuant to the rules and regulations of the United States Securities and Exchange Commission ("SEC").
Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the 52-week
fiscal year ended January 30, 2010 ("fiscal year 2009"), which were filed with the Company's Annual Report on Form 10-K with the SEC on April 6, 2010. The
52-week fiscal year ending January 29, 2011 is referred to herein as "fiscal year 2010." The Company's fiscal year is a 52- or 53-week year that ends on the
Saturday closest to January 31.

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

2. Restructuring

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

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



4

---



Table of Contents

New York & Company, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

October 30, 2010

(Unaudited)

2. Restructuring (Continued)



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

As
previously announced, the Company exited an underperforming test accessories concept consisting of five stores. In connection with the exit of this concept, during the second quarter
of fiscal year 2010, the Company recorded pre-tax restructuring charges totaling $2.1 million, which consists of non-cash charges of $1.1 million related
to the impairment of store assets, $0.8 million related to the write-off of inventory and $0.1 million of severance costs. During the third quarter of fiscal
year 2010, the Company recorded additional pre-tax restructuring charges of $0.1 million related primarily to lease exit costs. The asset impairment charges, severance costs,
and lease exit costs totaling $1.3 million are reported in "Restructuring charges" and the inventory write-off of $0.8 million is reported in "Cost of goods sold, buying and
occupancy costs" on the Company's condensed consolidated statements of operations.

As
of October 30, 2010 and January 30, 2010, restructuring related severance accruals of approximately $0.2 million and $1.0 million, respectively, are
included in accrued expenses on the condensed consolidated balance sheets. Since the inception of the Company's restructuring activities in January 2009, it has paid approximately
$2.6 million in total for the severance liabilities described above.

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

3. Earnings Per Share

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

5

---



Table of Contents

New York & Company, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

October 30, 2010

(Unaudited)

3. Earnings Per Share (Continued)

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

Three months
ended
October 30,
2010

Three months
ended
October 31,
2009

Nine months
ended
October 30,
2010

Nine months
ended
October 31,
2009(Amounts in thousands, except per share amounts)Income (loss) from continuing operations

$
1,854

$
(6,302
)
$
(91,478
)
$
(16,019
)Income from discontinued operations, net of taxes











3Net income (loss)

$
1,854

$
(6,302
)
$
(91,478
)
$
(16,016
)Basic earnings (loss) per shareWeighted average shares outstanding:Basic shares of common stock


59,502


59,161


59,412


59,508Basic earnings (loss) per share from continuing operations

$
0.03

$
(0.11
)
$
(1.54
)
$
(0.27
)Basic earnings per share from discontinued operations











Basic earnings (loss) per share

$
0.03

$
(0.11
)
$
(1.54
)
$
(0.27
)Diluted earnings (loss) per shareWeighted average shares outstanding:Basic shares of common stock


59,502


59,161


59,412


59,508Plus impact of share-based awards


813








Diluted shares of common stock


60,315


59,161


59,412


59,508Diluted earnings (loss) per share from continuing operations

$
0.03

$
(0.11
)
$
(1.54
)
$
(0.27
)Diluted earnings per share from discontinued operations











Diluted earnings (loss) per share

$
0.03

$
(0.11
)
$
(1.54
)
$
(0.27
)


The
calculation of diluted earnings (loss) per share for the three and nine months ended October 30, 2010 excludes 4,119,011 and 4,537,786 potential shares, respectively, due to
their anti-dilutive effect. The calculation of diluted loss per share for the three and nine months ended October 31, 2009 excludes 3,127,388 and 3,598,970 potential shares,
respectively, due to their anti-dilutive effect.

4. Share-Based Compensation

The Company accounts for all share-based payments in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards CodificationTM ("ASC")
Topic 718, "Compensation

6

---



Table of Contents

New York & Company, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

October 30, 2010

(Unaudited)

4. Share-Based Compensation (Continued)

Stock
Compensation" ("ASC 718"). ASC 718 requires that the cost resulting from all share-based payment transactions be treated as compensation and recognized in the consolidated
financial statements.

The
Company recorded share-based compensation expense in the amount of $0.8 million and $0.4 million for the three months ended October 30, 2010 and
October 31, 2009, respectively, and $1.8 million and $1.4 million for the nine months ended October 30, 2010 and October 31, 2009, respectively.

On
April 1, 2010, in connection with the Company's annual performance review process for all associates, the Company issued 540,000 shares of restricted stock and 770,000 stock
appreciation rights ("SAR"), all of which are scheduled to vest on April 1, 2013, subject to continued employment with the Company through such date. In connection with the appointment of
Gregory Scott as the Company's President on June 1, 2010, Mr. Scott received an award of 750,000 SARs that vest in four equal annual installments through June 1, 2014, subject to
continued employment with the Company through such date. On August 18, 2010, the Company granted a total of 214,283 shares of restricted stock to the independent members of its board of
directors in connection with the annual compensation review of its board of directors. In connection with the appointment of Eran Cohen as the Company's Executive Vice President and Chief Marketing
Officer on October 25, 2010, Mr. Cohen received an award of 450,000 SARs that vest on the following dates, subject to continued employment with the Company through such dates: 100,000
SARs on October 25, 2011, 100,000 SARs on October 25, 2012, 100,000 SARs on October 25, 2013, and 150,000 SARs on October 25, 2014.

Each
SAR granted in fiscal year 2010 represents the right to receive a payment measured by the increase in the fair market value of one share of common stock from the date of
grant of the SAR to the date of exercise of the SAR. Upon exercise, the SARs will be settled in stock. The fair value of a SAR is calculated using the Black-Scholes option-pricing model, which for the
April 1, 2010, June 1, 2010 and October 25, 2010 SARs resulted in a fair value of $2.90 per SAR, $2.40 per SAR and $2.09 per SAR, respectively. The fair value of restricted stock
is based on the closing stock price of an unrestricted share of the Company's common stock on the grant date, which on April 1, 2010 and August 18, 2010 was $4.79 and $2.10,
respectively. Total compensation expense related to the restricted stock and SARs granted will be recognized in the consolidated financial statements on a straight-line basis over the
requisite service period of the awards.

During
the nine months ended October 30, 2010, 149,073 shares of common stock were issued upon exercise of stock options.

5. Pension Plan

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

7

---



Table of Contents

New York & Company, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

October 30, 2010

(Unaudited)

5. Pension Plan (Continued)

The
plan provides retirement benefits for union employees who have attained the age of 21 and complete 1,000 or more hours of service in any calendar year following the date of
employment. The plan provides benefits based on length of service. The Company's funding policy for the pension plan is to contribute annually the amount necessary to provide for benefits based on
accrued service. The Company anticipates contributing approximately $0.8 million to the plan during fiscal year 2010. Net periodic benefit cost includes the following components:

Three months
ended
October 30,
2010

Three months
ended
October 31,
2009

Nine months
ended
October 30,
2010

Nine months
ended
October 31,
2009(Amounts in thousands)Service cost

$
83

$
67

$
249

$
201Interest cost


126


139


378


417Expected return on plan asset


(120
)

(103
)

(360
)

(309
)Amortization of unrecognized losses


32


36


96


108Net periodic benefit cost

$
121

$
139

$
363

$
417


6. Income Taxes

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

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

The
effective tax rate for the three months ended October 30, 2010 reflects a benefit of 144.2%, as compared to a benefit of 43.3% for the three months ended October 31,
2009. The effective tax rate for the nine months ended October 30, 2010 reflects a provision of 15.4%, as compared to a benefit of 42.6% for the nine months ended October 31, 2009.

The
change in the effective tax rate during the three months ended October 30, 2010, as compared to the same period last year, is primarily due to the following: (i) a
$6.1 million tax benefit recorded during the three months ended October 30, 2010 related primarily to a change in accounting methods for tax purposes, which resulted in a reduction of
the depreciable lives of certain assets, and a refund

8

---



Table of Contents

New York & Company, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

October 30, 2010

(Unaudited)

6. Income Taxes (Continued)

of
amounts previously paid with a corresponding adjustment to the Company's valuation allowance against its deferred tax assets and (ii) a non-cash charge of $1.7 million to
establish a valuation allowance against deferred tax assets generated during the three months ended October 30, 2010. The change in the effective tax rate during the nine months ended
October 30, 2010, as compared to the same period last year, is primarily due to a $48.5 million non-cash charge to income tax expense incurred during the three months ended
July 31, 2010, which includes a $48.0 million valuation allowance against the Company's deferred tax assets and a $0.5 million reserve for uncertain tax positions, plus the
tax-related adjustments described above that were recorded during the three months ended October 30, 2010.

During
the three months ended July 31, 2010, the Company concluded that a full valuation allowance against the Company's deferred tax assets was necessary in order to reflect the
Company's assessment of its ability to realize the benefits of those deferred tax assets. The Company made this determination after weighing both negative and positive evidence in accordance with FASB
ASC Topic 740, "Income Taxes" ("ASC 740") which requires that deferred tax assets be reduced by a valuation allowance if, based on all available evidence, it is considered more likely
than not that some portion or all of the recorded deferred tax assets will not be realized in a future period. The evidence weighed included a historical three-year cumulative loss related
to earnings before taxes in addition to an assessment of sources of taxable income, existing tax planning strategies, and future projections of earnings. The Company will continue to maintain a
valuation allowance against its deferred tax assets until the Company believes it is more likely than not that these assets will be realized in the future. If sufficient positive evidence arises in
the future indicating that all or a portion of the deferred tax assets meet the more-likely-than-not standard under ASC 740, the valuation allowance would be
reversed accordingly in the period that such determination is made. As of October 30, 2010, the Company's valuation allowance against its deferred tax assets was $43.5 million.

7. Long-Term Debt and Credit Facilities

The Company's credit facilities currently consist of a term loan, of which $9.0 million was outstanding at October 30, 2010, and a $90.0 million revolving credit
facility (which includes a sub-facility available for issuance of letters of credit of up to $75.0 million), both having a maturity date of March 17, 2012.

The
maximum borrowing availability under the Company's revolving credit facility is determined by a monthly borrowing base calculation that is based on the application of specified
advance rates against inventory and certain other eligible assets. As of October 30, 2010, the Company had availability under its revolving credit facility of $62.2 million, net of
letters of credit outstanding of $8.8 million and revolving loans outstanding of $9.0 million, as compared to availability of $48.4 million, net of letters of credit outstanding
of $7.2 million and no revolving loans outstanding, as of January 30, 2010, and $73.6 million, net of letters of credit outstanding of $7.0 million and no revolving loans
outstanding, as of October 31, 2009.

As
of December 9, 2010, the date of this Quarterly Report on Form 10-Q, the Company had repaid the $9.0 million of short-term borrowings that
was outstanding under its revolving credit facility

9

---



Table of Contents

New York & Company, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

October 30, 2010

(Unaudited)

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

on
October 30, 2010. The Company expects to have no borrowings outstanding under its revolving credit facility at the end of the fourth quarter (January 29, 2011).

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

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

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

8. Fair Value Measurements

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

10

---



Table of Contents

New York & Company, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

October 30, 2010

(Unaudited)

8. Fair Value Measurements (Continued)

minimize
the use of unobservable inputs when measuring fair value. The three levels of inputs used to measure fair value are as follows:

Level 1:

Observable inputs such as quoted prices in active markets;Level 2:

Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; andLevel 3:

Unobservable inputs in which there is little or no market data and require the reporting entity to develop its own assumptions.


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

In
accordance with the provisions of FASB ASC Topic 360, "Property, Plant and Equipment" ("ASC 360"), during the three months ended July 31, 2010, certain
long-lived store assets held and used with a carrying value of $24.3 million were written down to their fair value of $8.0 million, resulting in a pre-tax
non-cash impairment charge of $16.3 million, of which $15.2 million relates to underperforming New York & Company stores and is reported in "Selling, general and
administrative expenses" and $1.1 million relates to a test accessories concept and is reported in "Restructuring charges" on the Company's condensed consolidated statements of operations.
Refer to Note 2, "Restructuring" for other charges incurred in connection with the exit of an underperforming test accessories concept. The Company classifies these store assets within
Level 3 of the fair value hierarchy. The Company evaluates long-lived assets for recoverability in accordance with ASC 360 whenever events or changes in circumstances
indicate that an asset may have been impaired. In evaluating an asset for recoverability, the Company estimates the future cash flow expected to result from the use of the asset and eventual
disposition and market data assumptions. If the sum of the expected future undiscounted cash flow is less than the carrying amount of the asset, an impairment loss equal to the excess of the carrying
amount over the fair value of the asset is recognized.

9. Share Repurchases

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

10. New Accounting Pronouncements

In May 2009, the FASB issued ASC Topic 855, "Subsequent Events" ("ASC 855"), which establishes general standards of accounting for the disclosure of events that
occur after the balance

11

---



Table of Contents

New York & Company, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

October 30, 2010

(Unaudited)

10. New Accounting Pronouncements (Continued)

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

In
January 2010, the FASB issued ASU No. 2010-06, "Improving Disclosures about Fair Value Measurements" ("ASU 2010-06"), which amends
ASC 820 by providing new disclosures and clarifying existing disclosures. ASU 2010-06 requires reporting entities to disclose separately the amounts of significant transfers
in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers. In addition, ASU 2010-06 requires the presentation of separate
information regarding purchases, sales, issuances, and settlements for Level 3 fair value measurements. ASU 2010-06 also clarifies the existing disclosures about the level of
disaggregation to require fair value measurement disclosures for each class of assets and liabilities and clarifies that a description of inputs and valuation techniques used to measure fair value is
required for both recurring and nonrecurring fair value measurements classified as Level 2 or Level 3. The new disclosures and clarifications of existing disclosures are effective for
interim and annual reporting periods beginning after December 15, 2009, except for disclosures about purchases, sales, issuances and settlements in the roll forward of activity in
Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Except for the detailed
Level 3 roll forward disclosures, the guidance in ASU 2010-06 was adopted by the Company on January 31, 2010 with no material impact on its financial position and
results of operations. The Company does not anticipate that the adoption of the remaining provisions of ASU 2010-06 regarding detailed Level 3 roll forward disclosures will
have a material impact on its financial position or results of operations.

12

---





Table of Contents

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

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND RISK FACTORS
(Cautionary Statements Under the Private Securities Litigation Reform Act of 1995)

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



13

---



Table of Contents



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

Overview

The Company is a leading specialty retailer of women's fashion apparel and accessories offering "NY Style" at Great Deals. The
Company's proprietary branded New York & Company® merchandise is sold exclusively through its national network of retail stores and E-commerce store at www.nyandcompany.com. The target
customers for the
Company's merchandise are fashion-conscious, value-sensitive women between the ages of 25 and 45. As of October 30, 2010, the Company operated 579 stores in 43 states.

The
Company's results for the three months ended October 30, 2010 produced higher sales and margins versus the year-ago period which were driven by reductions in the
level of spring carryover inventory and improvements in the fall product assortment. During the quarter, the Company was more targeted and efficient with its customer relationship management efforts
which allowed the Company to be more selective in its promotion and thus drive higher margins. As a result, net sales for the three months ended October 30, 2010 increased by 4.5% to
$238.2 million, as compared to $227.9 million for the three months ended October 31, 2009. Comparable store sales increased 3.6% for the three months ended October 30,
2010, as compared to a comparable store sales decrease of 8.4% for the three months ended October 31, 2009. Net income from continuing operations for the three months ended October 30,
2010 was $1.9 million, or $0.03 per diluted share, which includes earnings of $0.06 per diluted share related to certain non-operating adjustments. This compares to a net loss from
continuing

14

---



Table of Contents

operations
of $6.3 million, or $0.11 per diluted share for the three months ended October 31, 2009, which included a previously disclosed non-operating loss of $0.01 per
diluted share related to restructuring charges.

The
non-operating adjustments recorded during the three months ended October 30, 2010 include a $6.1 million tax benefit resulting primarily from a change in
accounting methods for tax purposes, partially offset by $1.2 million of tax expense to record a valuation allowance against certain deferred tax assets generated during the third quarter,
$1.0 million of separation expenses related to recent management changes that were not associated with the Company's restructuring activities, and $0.1 million of restructuring charges.
Management refers to these adjustments as non-operating because management does not believe that they are indicative of the Company's continuing operating activities.

Capital
spending for the nine months ended October 30, 2010 was $13.0 million, as compared to $8.9 million for the nine months ended October 31, 2009. The
$13.0 million of capital spending represents $8.9 million related to the construction of 21 new stores and the remodeling of six existing stores, and $4.1 million related to
non-store capital projects. The Company ended the third quarter of fiscal year 2010 operating 579 stores, including 23 New York & Company Outlet stores. Of these 23 New
York & Company Outlet stores opened this year, four of them were converted from existing retail stores. Capital spending during the nine months ended October 31, 2009 represents
$4.6 million related to the construction of 11 new stores and the remodeling of three existing stores, and $4.3 million related to non-store capital projects.

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

General

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

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

Cost of Goods Sold, Buying and Occupancy Costs.Cost of goods sold, buying and occupancy costs is comprised of direct inventory costs
for merchandise
sold, distribution, payroll and related costs for

15

---



Table of Contents

design,
sourcing, production, merchandising, planning and allocation personnel, and store occupancy and related costs.

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

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

Results of Operations

The following tables summarize the Company's results of operations as a percentage of net sales and selected store operating data for
the three and nine months ended October 30, 2010 and October 31, 2009:

As a % of net sales

Three months
ended
October 30,
2010

Three months
ended
October 31,
2009

Nine months
ended
October 30,
2010

Nine months
ended
October 31,
2009Net sales


100.0
%

100.0
%

100.0
%

100.0
%Cost of goods sold, buying and occupancy costs


72.1
%

74.7
%

79.8
%

75.6
%Gross profit


27.9
%

25.3
%

20.2
%

24.4
%Selling, general and administrative expenses


29.6
%

29.9
%

31.0
%

28.2
%Restructuring charges



%

0.2
%

0.2
%

0.1
%Operating loss


(1.7
)%

(4.8
)%

(11.0
)%

(3.9
)%Interest expense, net


0.1
%

0.1
%

0.1
%

0.1
%Loss from continuing operations before income taxes


(1.8
)%

(4.9
)%

(11.1
)%

(4.0
)%(Benefit) provision for income taxes


(2.6
)%

(2.1
)%

1.6
%

(1.7
)%Income (loss) from continuing operations


0.8
%

(2.8
)%

(12.7
)%

(2.3
)%Income from discontinued operations, net of taxes



%


%


%


%Net income (loss)


0.8
%

(2.8
)%

(12.7
)%

(2.3
)%




Selected operating data:

Three months
ended
October 30,
2010

Three months
ended
October 31,
2009

Nine months
ended
October 30,
2010

Nine months
ended
October 31,
2009(Dollars in thousands, except square foot data)Comparable store sales increase (decrease)


3.6
%

(8.4
)%

1.5
%

(13.5
)%Net sales per average selling square foot(1)

$
75

$
69

$
225

$
215Net sales per average store(2)

$
411

$
385

$
1,243

$
1,199Average selling square footage per store(3)


5,505


5,568


5,505


5,568


(1)Net
sales per average selling square foot is defined as net sales divided by the average of beginning and end of period selling square feet.(2)Net
sales per average store is defined as net sales divided by the average of beginning and end of period number of stores.


16

---



Table of Contents

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


Three months
ended
October 30, 2010

Three months
ended
October 31, 2009

Nine months
ended
October 30, 2010

Nine months
ended
October 31, 2009Store count and selling square feet:

Store Count

Selling
Square Feet

Store Count

Selling
Square Feet

Store Count

Selling
Square Feet

Store Count

Selling
Square FeetStores open, beginning of period


581


3,184,297


591


3,302,208


576


3,193,602


589


3,294,779New stores


4


13,838


5


6,328


21


71,500


11


31,755Closed stores


(6
)

(9,010
)

(4
)

(15,573
)

(18
)

(71,873
)

(8
)

(33,571
)Net impact of remodeled stores on selling square feet





(2,009
)




3,280





(6,113
)




3,280Stores open, end of period


579


3,187,116


592


3,296,243


579


3,187,116


592


3,296,243


Three Months Ended October 30, 2010 Compared to Three Months Ended October 31, 2009

Net Sales.Net sales for the three months ended October 30, 2010 increased 4.5% to $238.2 million, as compared to
$227.9 million
for the three months ended October 31, 2009. The increase in net sales is primarily driven by a 3.6% increase in comparable store sales for the three months ended October 30, 2010, as
compared to a decrease of 8.4% for the three months ended October 31, 2009. In the comparable store base, average dollar sales per transaction increased by 7.4%, while the number of
transactions per average store decreased by 3.5%, as compared to the same period last year.

Gross Profit.Gross profit for the three months ended October 30, 2010 was $66.5 million, or 27.9% of net sales, as compared
to
$57.7 million, or 25.3% of net sales, for the three months ended October 31, 2009. The increase in gross profit as a percentage of net sales during the three months ended
October 30, 2010 is due to a 240 basis point decrease in buying and occupancy costs primarily attributable to the increase in leverage resulting from the positive comparable store sales
combined with a 20 basis point increase in merchandise margins reflecting lower promotional activity.

Selling, General and Administrative Expenses.Selling, general and administrative expenses were $70.4 million, or 29.6% of net
sales, for the
three months ended October 30, 2010, as compared to $68.2 million, or 29.9% of net sales, for the three months ended October 31, 2009. The increase in selling, general and
administrative expenses is primarily attributable to an increase in expenses needed to support higher sales levels and increased expenses to support the Company's new outlet business, which now
includes 23 New York & Company Outlet stores in operation. In addition, the Company recorded approximately $1.0 million of separation expenses related to recent management changes that
were not associated with the Company's restructuring activities. Excluding the $1.0 million of separation expenses, selling, general and administrative expenses for the three months ended
October 30, 2010 were 29.1% of net sales, as compared to 29.9% of net sales for the three months ended October 31, 2009.

Restructuring charges.As previously announced, the Company exited an underperforming test accessories concept consisting of five
stores. In
connection with the exit of this concept, during the three months ended October 30, 2010, the Company recorded additional pre-tax restructuring charges of $0.1 million
related primarily to lease exit costs. In the prior year, the Company incurred separation expenses of $0.5 million related to management changes to restructure the Company's real estate group.

17

---



Table of Contents

Operating Loss.For the reasons discussed above, operating loss for the three months ended October 30, 2010 was $4.0 million,
or 1.7%
of net sales, as compared to an operating loss of $10.9 million, or 4.8% of net sales, for the three months ended October 31, 2009.

Interest Expense, Net.Net interest expense was flat for the three months ended October 30, 2010, as compared to the three months
ended
October 31, 2009, at $0.2 million.

Benefit for Income Taxes.The effective tax rate for the three months ended October 30, 2010 reflects a benefit of 144.2%, as
compared to a
benefit of 43.3% for the three months ended October 31, 2009. The change in the effective tax rate is largely the result of a $6.1 million tax benefit resulting primarily from a change
in accounting methods for tax purposes, which resulted in a reduction of the depreciable lives of certain assets, and a refund of amounts previously paid with a corresponding adjustment to the
Company's valuation allowance against its deferred tax assets. In addition, the Company recorded non-cash charges of $1.7 million to establish a valuation allowance against deferred
tax assets generated during the three months ended October 30, 2010. For further information related to the deferred tax valuation allowance, please refer to Note 6, "Income Taxes" in
the Notes to Condensed Consolidated Financial Statements appearing elsewhere in this Quarterly Report on Form 10-Q.

Income (loss) from Continuing Operations.For the reasons discussed above, income from continuing operations for the three months ended
October 30, 2010 was $1.9 million, or 0.8% of net sales, as compared to a loss from continuing operations of $6.3 million, or 2.8% of net sales, for the three months ended
October 31, 2009.

Nine Months Ended October 30, 2010 Compared to Nine Months Ended October 31, 2009

Net Sales.Net sales for the nine months ended October 30, 2010 increased 1.4% to $718.5 million, as
compared to $708.6 million for the nine months ended October 31, 2009. Comparable store sales for the nine months ended October 30, 2010 increased by 1.5%, as compared to a
decrease of 13.5% for the nine months ended October 31, 2009. In the comparable store base, average dollar sales per transaction decreased by 1.3%, while the number of transactions per average
store increased by 2.8%, as compared to the same period last year.

Gross Profit.Gross profit for the nine months ended October 30, 2010 was $145.1 million, or 20.2% of net sales, as compared
to
$172.7 million, or 24.4% of net sales, for the nine months ended October 31, 2009. The decrease in gross profit as a percentage of net sales during the nine months ended
October 30, 2010 is due to a 530 basis point decrease in merchandise margins resulting from increased levels of promotional activity primarily during the three months ended July 31, 2010
in order to drive sales and clear inventory in preparation for the fall season, partially offset by a 110 basis point decrease in buying and occupancy costs. The decrease in buying and occupancy costs
as a percentage of net sales is primarily attributable to the increase in comparable store sales combined with savings recognized from the Company's restructuring and cost reduction program.

Selling, General and Administrative Expenses.Selling, general and administrative expenses were $222.5 million, or 31.0% of net
sales, for the
nine months ended October 30, 2010, as compared to $199.6 million, or 28.2% of net sales, for the nine months ended October 31, 2009. The increase in selling, general and
administrative expenses as a percentage of net sales is primarily a result of non-cash charges totaling $15.7 million recorded during the three months ended July 31, 2010, of
which $15.2 million relates to the impairment of New York & Company store assets and $0.5 million relates to the disposal of certain information technology assets. During the
three months ended October 30, 2010, the Company recorded approximately $1.0 million of separation expenses related to recent management changes that were not associated with the
Company's restructuring activities. In addition, during the nine months ended October 30, 2010, the Company recorded charges totaling $2.6 million in connection with state sales and use
tax and payroll tax audits.

18

---





Table of Contents

Restructuring charges.As previously announced, the Company exited an underperforming test accessories concept consisting of five
stores. In
connection with the exit of this concept, during the three months ended July 31, 2010, the Company recorded $1.1 million of non-cash charges related to the impairment of
store assets and $0.1 million of severance costs, which are reported in "Restructuring charges" on the condensed consolidated statements of operations. In addition, the Company recorded a
$0.8 million charge related to the write-off of inventory, which is reported in "Cost of goods sold, buying and occupancy costs" on the condensed consolidated statements of
operations. During the three months ended October 30, 2010, the Company recorded additional pre-tax restructuring charges of $0.1 million related primarily to lease exit
costs. In the prior year, the Company incurred separation expenses of $0.5 million related to management changes to restructure the Company's real estate group.

Operating Loss.For the reasons discussed above, operating loss for the nine months ended October 30, 2010 was $78.7 million,
or 11.0%
of net sales, as compared to an operating loss of $27.3 million, or 3.9% of net sales, for the nine months ended October 31, 2009.

Interest Expense, Net.Net interest expense for the nine months ended October 30, 2010 was $0.5 million, as compared to net
interest
expense of $0.6 million for the nine months ended October 31, 2009.

Provision (Benefit) for Income Taxes.The effective tax rate for the nine months ended October 30, 2010 reflects a provision of
15.4%, as
compared to a benefit of 42.6% for the nine months ended October 31, 2009. The change in the effective tax rate during the nine months ended October 30, 2010, as compared to the same
period last year, is primarily due to the following: (i) a $48.5 million non-cash charge to income tax expense incurred during the three months ended July 31, 2010,
which includes a $48.0 million valuation allowance against the Company's deferred tax assets and a $0.5 million reserve for uncertain tax positions, (ii) a $6.1 million tax
benefit recorded during the three months ended October 30, 2010 related primarily to a change in accounting methods for tax purposes, which resulted in a reduction of the depreciable lives of
certain assets, and a refund of amounts previously paid with a corresponding adjustment to the Company's valuation allowance against its deferred tax assets, and (iii) a non-cash
charge of $1.7 million to establish a valuation allowance against deferred tax assets generated during the three months ended October 30, 2010. For further information related to the
deferred tax valuation allowance, please refer to Note 6, "Income Taxes" in the Notes to Condensed Consolidated Financial Statements appearing elsewhere in this Quarterly Report on
Form 10-Q.

Loss from Continuing Operations.For the reasons discussed above, loss from continuing operations for the nine months ended
October 30, 2010
was $91.5 million, or 12.7% of net sales, as compared to a loss from continuing operations of $16.0 million, or 2.3% of net sales, for the nine months ended October 31, 2009.

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

Non-GAAP Financial Measure

A reconciliation of the Company's GAAP to non-GAAP loss from continuing operations before income taxes, net loss from
continuing operations and loss per diluted share for the three and nine months ended October 30, 2010 and October 31, 2009 are indicated below. This information reflects, on a
non-GAAP adjusted basis, the Company's operating results after excluding the effects of charges incurred in connection with the Company's restructuring and cost reduction program in
addition to certain non-operating adjustments recorded during the second and third quarters of fiscal year 2010. This non-GAAP financial information is provided to
enhance the user's overall understanding of the Company's current financial performance. Specifically, the Company believes the non-GAAP adjusted

19

---



Table of Contents

results
provide useful information to both management and investors by excluding expenses and earnings that the Company believes are not indicative of the Company's continuing operating results. The
non-GAAP financial information should be considered in addition to, not as a substitute for or as being superior to, measures of financial performance prepared in accordance
with GAAP.

Reconciliation of GAAP to Non-GAAP Financial Measures

Three months ended October 30, 2010(Amounts in thousands, except per share amounts)

Loss from
continuing
operations
before income
taxes

Benefit for
income taxes

Net income
(loss) from
continuing
operations

Net earnings
(loss) per
diluted share
from continuing
operationsGAAP as reported

$
(4,190
)
$
(6,044
)
$
1,854

$
0.03Adjustments affecting comparabilityRestructuring charges(a)


100


(40
)

60


Separation expenses(a)


953


(383
)

570


0.01Tax benefit from a change in accounting methods for tax purposes





(6,082
)

(6,082
)

(0.10
)Deferred tax valuation allowance and reserve for uncertain tax positions(b)





1,695


1,695


0.03Non-GAAP as adjusted

$
(3,137
)
$
(1,234
)
$
(1,903
)
$
(0.03
)




Three months ended October 31, 2009(Amounts in thousands, except per share amounts)

Loss from
continuing
operations
before income
taxes

Benefit for
income taxes

Net loss from
continuing
operations

Net loss per
diluted share
from continuing
operationsGAAP as reported

$
(11,105
)
$
(4,803
)
$
(6,302
)
$
(0.11
)Adjustments affecting comparabilityRestructuring charges(a)


458


(184
)

274


0.01Non-GAAP as adjusted

$
(10,647
)
$
(4,619
)
$
(6,028
)
$
(0.10
)


(a)The
tax effect is calculated using a 40.2% effective tax rate.(b)Includes
a $1.2 million valuation allowance against deferred tax assets generated by the third quarter of fiscal year 2010 operating loss and
a $0.4 million valuation allowance against deferred


20

---



Table of Contents

tax
assets generated by the non-operating, restructuring and separation expenses incurred during the third quarter of fiscal year 2010.


Nine months ended October 30, 2010(Amounts in thousands, except per share amounts)

Loss from
continuing
operations
before income
taxes

Provision
(benefit) for
income taxes

Net loss from
continuing
operations

Net loss per
diluted share
from continuing
operationsGAAP as reported

$
(79,255
)
$
12,223

$
(91,478
)
$
(1.54
)Adjustments affecting comparabilityRestructuring charges(a)


2,163


(870
)

1,293


0.02Separation expenses(a)


953


(383
)

570


0.01New York & Company asset impairments and disposals(a)


15,725


(6,321
)

9,404


0.16Tax benefit from a change in accounting methods for tax purposes





(6,082
)

(6,082
)

(0.10
)Deferred tax valuation allowance and reserve for uncertain tax positions





50,189


50,189


0.84Non-GAAP as adjusted

$
(60,414
)
$
(24,310
)
$
(36,104
)
$
(0.61
)




Nine months ended October 31, 2009(Amounts in thousands, except per share amounts)

Loss from
continuing
operations
before income
taxes

Benefit for
income taxes

Net loss from
continuing
operations

Net loss per
diluted share
from continuing
operationsGAAP as reported

$
(27,916
)
$
(11,897
)
$
(16,019
)
$
(0.27
)Adjustments affecting comparabilityRestructuring charges(a)


458


(184
)

274


0.01Non-GAAP as adjusted

$
(27,458
)
$
(11,713
)
$
(15,745
)
$
(0.26
)


(a)The
tax effect is calculated using a 40.2% effective tax rate.


Liquidity and Capital Resources

The Company's primary uses of cash are to fund working capital, operating expenses, debt service and capital expenditures related
primarily to the construction of new stores, remodeling of existing stores and development of the Company's information technology infrastructure. Historically, the Company has financed these
requirements from internally generated cash flow. The Company intends to fund its ongoing capital and working capital requirements, as well as debt service obligations, primarily through cash flows
from operations, supplemented by borrowings under its credit facilities, if needed. The Company is in compliance with all debt covenants as of October 30, 2010.

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

October 30,
2010

January 30,
2010

October 31,
2009(Amounts in thousands)Cash and cash equivalents

$
22,461

$
87,296

$
39,297Working capital

$
24,903

$
67,954

$
61,248


21

---



Table of Contents



Nine months
ended
October 30,
2010

Nine months
ended
October 31,
2009(Amounts in thousands)Net cash (used in) provided by operating activities of continuing operations

$
(57,373
)
$
1,589Net cash used in investing activities of continuing operations

$
(12,053
)
$
(8,903
)Net cash provided by (used in) financing activities of continuing operations

$
4,591

$
(7,664
)Net cash used in discontinued operations

$


$
(6
)Net decrease in cash and cash equivalents

$
(64,835
)
$
(14,984
)


Operating Activities of Continuing Operations

Net cash used in operating activities of continuing operations was $57.4 million for the nine months ended October 30,
2010, as compared to net cash provided by operating activities of continuing operations of $1.6 million for the nine months ended October 31, 2009. The increase in net cash used in
operating activities is primarily due to the net loss from continuing operations during the nine months ended October 30, 2010 and changes in accounts receivable, income taxes receivable,
inventories, and deferred rent, partially offset by changes in prepaid expenses, accounts payable, accrued expenses, income taxes payable and other assets and liabilities.

Investing Activities of Continuing Operations

Net cash used in investing activities of continuing operations was $12.1 million for the nine months ended October 30,
2010, as compared to $8.9 million for the nine months ended October 31, 2009. Net cash used in investing activities during the nine months ended October 30, 2010 reflects capital
expenditures of $8.9 million related to the construction of 21 new stores and the remodeling of six existing stores, and $4.1 million related to non-store capital projects,
partially offset by $0.9 million of proceeds from the sale of fixed assets. Net cash used in investing activities during the nine months ended October 31, 2009 represents capital
expenditures of $4.6 million related to the construction of 11 new stores and the remodeling of three existing stores, and $4.3 million for non-store capital projects.

As
of October 30, 2010, the Company operated 579 stores, including 23 New York & Company Outlet stores. The Company plans to end fiscal year 2010 with
approximately 552 to 560 stores, including 24 New York & Company Outlet stores, and 3.0 million selling square feet. The Company's future capital requirements will depend
primarily on the number of new stores it opens, the number of existing stores it remodels and the timing of these expenditures.

Financing Activities of Continuing Operations

Net cash provided by financing activities of continuing operations was $4.6 million for the nine months ended October 30,
2010, as compared to $7.7 million of net cash used in financing activities of continuing operations for the nine months ended October 31, 2009. Net cash provided by financing activities
for the nine months ended October 30, 2010 consists primarily of $9.0 million of proceeds from borrowings under the Company's revolving credit facility, partially offset by quarterly
payments against the Company's outstanding term loan totaling $4.5 million. Net cash used in financing activities for the nine months ended October 31, 2009 consists of quarterly
payments against the Company's outstanding term loan totaling $4.5 million plus $3.4 million used for the repurchase of 1,000,000 shares of the Company's common stock under its
authorized share repurchase program, partially offset by $0.3 million of proceeds from the exercise of stock options and the related tax benefit to the Company.

22

---



Table of Contents

Discontinued Operations Cash Flows

There were no material payments or receipts during the nine months ended October 30, 2010 and October 31, 2009 that
related to the discontinued operations of JasmineSola.

Long-Term Debt and Credit Facilities

The Company's credit facilities currently consist of a term loan, of which $9.0 million was outstanding at October 30,
2010, and a $90.0 million revolving credit facility (which includes a sub-facility available for issuance of letters of credit of up to $75.0 million), both having a maturity
date of March 17, 2012.

The
maximum borrowing availability under the Company's revolving credit facility is determined by a monthly borrowing base calculation that is based on the application of specified
advance rates against inventory and certain other eligible assets. As of October 30, 2010, the Company had availability under its revolving credit facility of $62.2 million, net of
letters of credit outstanding of $8.8 million and revolving loans outstanding of $9.0 million, as compared to availability of $48.4 million, net of letters of credit outstanding
of $7.2 million and no revolving loans outstanding, as of January 30, 2010, and $73.6 million, net of letters of credit outstanding of $7.0 million and no revolving loans
outstanding, as of October 31, 2009.

As
of December 9, 2010, the date of this Quarterly Report on Form 10-Q, the Company had repaid the $9.0 million of short-term borrowings that
was outstanding under its revolving credit facility on October 30, 2010. The Company expects to have no borrowings outstanding under its revolving credit facility at the end of the fourth
quarter (January 29, 2011).

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

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

23

---



Table of Contents

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

Critical Accounting Policies

Management has determined that the Company's most critical accounting policies are those related to inventory valuation, impairment of
long-lived assets, goodwill and other intangible assets, and income taxes. Management continues to monitor these accounting policies to ensure proper application of current rules and
regulations. There have been no significant changes to these policies as discussed in the Company's Annual Report on Form 10-K for the fiscal year ended January 30, 2010.

Adoption of New Accounting Standards

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

In
January 2010, the FASB issued ASU No. 2010-06, "Improving Disclosures about Fair Value Measurements" ("ASU 2010-06"), which amends ASC 820
by providing new disclosures and clarifying existing disclosures. ASU 2010-06 requires reporting entities to disclose separately the amounts of significant transfers in and out of
Level 1 and Level 2 fair value measurements and describe the reasons for the transfers. In addition, ASU 2010-06 requires the presentation of separate information regarding
purchases, sales, issuances, and settlements for Level 3 fair value measurements. ASU 2010-06 also clarifies the existing disclosures about the level of disaggregation to
require fair value measurement disclosures for each class of assets and liabilities and clarifies that a description of inputs and valuation techniques used to measure fair value is required for both
recurring and nonrecurring fair value measurements classified as Level 2 or Level 3. The new disclosures and clarifications of existing disclosures are effective for interim and annual
reporting periods beginning after December 15, 2009, except for disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value
measurements, which are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Except for the detailed Level 3 roll forward
disclosures, the guidance in ASU 2010-06 was adopted by the Company on January 31, 2010 with no material impact on its financial position and results of operations. The
Company does not anticipate that the adoption of the remaining provisions of ASU 2010-06 regarding detailed Level 3 roll forward disclosures will have a material impact on its
financial position or results of operations.

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rates.The Company's market risks relate primarily to changes in interest rates. The Company's credit facilities carry floating
interest
rates that are tied to the Eurodollar rate and the Prime rate and therefore the consolidated statements of operations and the consolidated statements of

24

---



Table of Contents

cash
flows will be exposed to changes in interest rates. An increase in interest rates of 1.0% would increase interest expenses by approximately $0.2 million annually. The Company historically
has not engaged in interest rate hedging activities.

Currency Exchange Rates.The Company historically has not been exposed to currency exchange rate risks with respect to inventory
purchases as such
expenditures have been, and continue to be, denominated in U.S. Dollars. The Company purchases some of its inventory from suppliers in China, for which the Company pays U.S. Dollars. Since July 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 of the Chinese Yuan to the U.S. Dollar continues to increase,
the Company may experience fluctuations in the cost of inventory purchased from China and the Company would adjust its supply chain accordingly.

ITEM 4.    CONTROLS AND PROCEDURES

(a)Evaluation of disclosure controls and procedures.The Company carried out an evaluation, as of
October 30, 2010, under the supervision and with the participation of the Company's management, including the Company's Principal Executive Officer and Principal Financial Officer, of the
effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act
of 1934, as amended. Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that the Company's disclosure controls and procedures are effective in
ensuring that all information required to be filed in this Quarterly Report on Form 10-Q was (i) recorded, processed, summarized and reported within the time period specified
in the Securities and Exchange Commission's rules and forms (ii) and that the disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to the Company's management, including its
Principal Executive and Principal Financial Officers, as appropriate to allow timely decisions regarding required disclosure.

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

25

---





Table of Contents

PART II.  OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

There have been no material changes in the Company's legal proceedings from what was reported in its Annual Report on
Form 10-K filed with the SEC on April 6, 2010.

ITEM 1A.    RISK FACTORS

There have been no material changes in the Company's risk factors from what was reported in its Annual Report on
Form 10-K filed with the SEC on April 6, 2010.

ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

As indicated in the table below, the Company did not make any purchases of the Company's common stock during the three months ended
October 30, 2010.

Period

Total Number
of Shares
Purchased

Average
Price Paid
Per Share

Total
Number of
Shares
Purchased as
Part of
Publicly
Announced
Program(1)

Maximum
Number of
Shares that
May Yet Be
Purchased
Under the
Program(1)August 1, 2010 to August 28, 2010











2,750,000August 29, 2010 to October 2, 2010











2,750,000October 3, 2010 to October 30, 2010











2,750,000Total











2,750,000


(1)On
November 26, 2008, the Company announced that its board of directors had authorized the repurchase of up to 3,750,000 shares over a
12 month period. Subsequently, on November 18, 2009, the Company's board of directors authorized the extension of the share repurchase program for an additional 12 month period
ending on November 23, 2010. During fiscal year 2009, the Company repurchased 1,000,000 shares of its common stock at a cost of approximately $3.4 million. As of the date of this
Quarterly Report on Form 10-Q, no additional repurchases had been made.


ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.    REMOVED AND RESERVED

ITEM 5.    OTHER INFORMATION

None.

26

---



Table of Contents

ITEM 6.    EXHIBITS

The following exhibits are filed with this report and made a part hereof.

10.1

Employment Letter, dated as of April 28, 2010, between New York & Company, Inc. and Greg Scott.31.1

Certification by the Chairman and Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated December 9, 2010.31.2

Certification by the Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated December 9, 2010.32.1

Written Statement of the Chief Executive Officer and the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated December 9, 2010.


27

---



Table of Contents

SIGNATURES

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

NEW YORK & COMPANY, INC./s/ SHEAMUS TOALBy:

Sheamus ToalIts:

Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)Date:

December 9, 2010


28

---