**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, DC  20549**

**FORM 10-Q**

**x**                              QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934

**for the quarterlyperiod ended April 30, 2005**

**OR**

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

**for the transitionperiod from                to**                .

**COMMISSION FILENUMBER:  1-32315**

**NEW YORK &COMPANY, INC.**

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

 

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

Indicate by check markwhether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes o  No x

As of May 27, 2005,the registrant had 53,513,261 shares of common stock outstanding.

 

----

**TABLE OF CONTENTS**
| PART I. FINANCIAL  INFORMATION                                                                       | 2  |   |
|------------------------------------------------------------------------------------------------------|----|--------|
| Item 1.  Financial Statements                                                                        | 2  |   |
| Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of  Operations | 9  |   |
| Item 3.  Quantitative and Qualitative Disclosures About Market Risk                                  | 17 |   |
| Item 4.  Controls and Procedures                                                                     | 17 |   |
| PART II.  OTHER INFORMATION                                                                     | 18 |   |
| Item 1. Legal Proceedings                                                                            | 18 |   |
| Item  2. Unregistered Sales of Equity Securities and Use of Proceeds                                 | 18 |   |
| Item  3. Defaults Upon Senior Securities                                                             | 18 |   |
| Item  4. Submission of Matters to a Vote of Security Holders                                         | 18 |   |
| Item 5. Other Information                                                                            | 18 |   |
| Item 6. Exhibits                                                                                     | 18 |   |

 

----

**CAUTIONARY NOTEREGARDINGFORWARD-LOOKING STATEMENTS AND RISK FACTORS**

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

This quarterly report on Form 10-Q includesforward-looking statements. Some of these statements can be identified byterms and phrases such as “anticipate,” “believe,” “intend,” “estimate,” “expect,”“continue,” “could,” “may,” “plan,” “project,” “predict” and similarexpressions, and include references to assumptions that the Company believesare reasonable and relate to its future prospects, developments and businessstrategies.

Factors that couldcause the Company’s actual results to differ materially from those expressed orimplied in such forward-looking statements include, but are not limitedto:

·       theCompany’s ability to open and operate new 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;

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

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

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

·       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;

·       thecontrol of the Company by its sponsors; and

·       risksand uncertainties as described in the Company’s documents filed with the UnitedStates Securities and Exchange Commission, including its Annual Report on Form 10-K,as filed on April 19, 2005.

The Company undertakes no obligation to revise theforward-looking statements included in this quarterly report on Form 10-Qto reflect any future events or circumstances. The Company’s actual results,performance or achievements could differ materially from the results expressedor implied by these forward-looking statements.

----

**PART I.**

**FINANCIAL INFORMATION**

**ITEM1**.   FINANCIAL STATEMENTS

**New York &Company, Inc. and SubsidiariesConsolidated Statements of Operations (Unaudited)**
| ** **                                                               | ** ** | **Three months  ended  April 30, 2005**                         | ** ** | **Three months  ended  May 1, 2004** | ** ** |
|--------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                               | ** ** | **(Amounts in thousands,  except per share amounts)** | ** ** |
| Net sales                                                                |       |                                                                           | $          | 269,975                                             |       |   |   | $ | 252,095 |   |   |
| Cost of goods  sold, buying and occupancy costs                          |       |                                                                           | 171,665    |                                                |       |   | 160,259 |   |   |
| Gross profit                                                             |       |                                                                           | 98,310     |                                                |       |   | 91,836 |   |   |
| Selling, general  and administrative expenses                            |       |                                                                           | 60,926     |                                                |       |   | 59,746 |   |   |
| Operating income                                                         |       |                                                                           | 37,384     |                                                |       |   | 32,090 |   |   |
| Interest expense,  net of interest income of $365 and $203, respectively |       |                                                                           | 1,409      |                                                |       |   | 1,754 |   |   |
| Accrued dividends—redeemable  preferred stock                       |       |                                                                           | —     |                                                |       |   | 2,230 |   |   |
| Loss on  modification and extinguishment of debt                         |       |                                                                           | —     |                                                |       |   | 352 |   |   |
| Loss on  derivative instrument (related to LFAS, Inc. warrant)      |       |                                                                           | —     |                                                |       |   | 2,466 |   |   |
| Income before income taxes                                               |       |                                                                           | 35,975     |                                                |       |   | 25,288 |   |   |
| Provision for  income taxes                                              |       |                                                                           | 14,495     |                                                |       |   | 12,294 |   |   |
| Net income                                                               |       |                                                                           | $          | 21,480                                              |       |   |   | $ | 12,994 |   |   |
| Basic earnings per share:                                                |       |                                                                           | $          | 0.40                                                |       |   |   | $ | 0.30 |   |   |
| Diluted earnings  per share:                                             |       |                                                                           | $          | 0.38                                                |       |   |   | $ | 0.25 |   |   |
| Weighted average  shares outstanding:                                    |       |                                                                           |       |                                                |       |   |   |   |   |
| Basic                                                                    |       |                                                                           | 53,340     |                                                |       |   | 43,761 |   |   |
| Diluted                                                                  |       |                                                                           | 56,673     |                                                |       |   | 52,909 |   |   |

 

See accompanying notes.

2

----

**New York &Company, Inc. and SubsidiariesConsolidated Balance Sheets**
| ** **                                                                                                                                                                                                                                     | ** ** | **April 30,  2005**                                                       | ** ** | **January 29,  2005** | ** ** | **May 1,  2004** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------|------------|----------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                                                                     | ** ** | **(Unaudited)**                                                                | ** ** | **(Audited)**              | ** ** | **(Unaudited)**       | ** ** |
| ** **                                                                                                                                                                                                                                     | ** ** | **(Amounts in thousands,  except per share amounts)** | ** ** |
| **Assets**                                                                                                                                                                                                                                     |       |                                                                           |       |                       |       |                  |       |   |   |   |   |   |   |
| Current assets:                                                                                                                                                                                                                                |       |                                                                           |       |                       |       |                  |       |   |   |   |   |   |   |
| Cash and cash equivalents                                                                                                                                                                                                                      |       |                                                                           | $          | 85,134                     |       |                  |       | $ | 85,161 |   |   |   | $ | 78,757 |   |   |
| Accounts receivable                                                                                                                                                                                                                            |       |                                                                           | 23,312     |                       |       |                  | 13,069     |   |   |   | 15,882 |   |   |
| Inventories, net                                                                                                                                                                                                                               |       |                                                                           | 99,508     |                       |       |                  | 93,379     |   |   |   | 85,794 |   |   |
| Prepaid expenses                                                                                                                                                                                                                               |       |                                                                           | 15,778     |                       |       |                  | 17,875     |   |   |   | 14,795 |   |   |
| Deferred income taxes                                                                                                                                                                                                                          |       |                                                                           | —     |                       |       |                  | —     |   |   |   | 89 |   |   |
| Other current assets                                                                                                                                                                                                                           |       |                                                                           | 1,997      |                       |       |                  | 1,256      |   |   |   | 1,879 |   |   |
| Total current assets                                                                                                                                                                                                                           |       |                                                                           | 225,729    |                       |       |                  | 210,740    |   |   |   | 197,196 |   |   |
| Property and equipment, net                                                                                                                                                                                                                    |       |                                                                           | 110,746    |                       |       |                  | 100,681    |   |   |   | 72,250 |   |   |
| Intangible assets                                                                                                                                                                                                                              |       |                                                                           | 14,843     |                       |       |                  | 14,843     |   |   |   | 14,515 |   |   |
| Deferred income taxes                                                                                                                                                                                                                          |       |                                                                           | —     |                       |       |                  | —     |   |   |   | 1,882 |   |   |
| Other assets                                                                                                                                                                                                                                   |       |                                                                           | 3,545      |                       |       |                  | 3,924      |   |   |   | 5,579 |   |   |
| Total assets                                                                                                                                                                                                                                   |       |                                                                           | $          | 354,863                    |       |                  |       | $ | 330,188 |   |   |   | $ | 291,422 |   |   |
| **Liabilities  and stockholders’ equity (deficit)**                                                                                                                                                                                       |       |                                                                           |       |                       |       |                  |       |   |   |   |   |   |   |
| Current liabilities:                                                                                                                                                                                                                           |       |                                                                           |       |                       |       |                  |       |   |   |   |   |   |   |
| Accounts payable                                                                                                                                                                                                                               |       |                                                                           | $          | 64,982                     |       |                  |       | $ | 74,045 |   |   |   | $ | 55,702 |   |   |
| Accrued expenses                                                                                                                                                                                                                               |       |                                                                           | 45,741     |                       |       |                  | 51,802     |   |   |   | 52,766 |   |   |
| Income taxes payable                                                                                                                                                                                                                           |       |                                                                           | 9,908      |                       |       |                  | —     |   |   |   | 11,072 |   |   |
| Deferred income taxes                                                                                                                                                                                                                          |       |                                                                           | 1,684      |                       |       |                  | 1,788      |   |   |   | — |   |   |
| Other current liabilities                                                                                                                                                                                                                      |       |                                                                           | —     |                       |       |                  | —     |   |   |   | 18,737 |   |   |
| Total current liabilities                                                                                                                                                                                                                      |       |                                                                           | 122,315    |                       |       |                  | 127,635    |   |   |   | 138,277 |   |   |
| Long-term debt                                                                                                                                                                                                                                 |       |                                                                           | 75,000     |                       |       |                  | 75,000     |   |   |   | 75,000 |   |   |
| Deferred income taxes                                                                                                                                                                                                                          |       |                                                                           | 6,966      |                       |       |                  | 6,698      |   |   |   | — |   |   |
| Series A redeemable preferred stock, 12.5%  cumulative, non-voting, par value $0.01; No shares authorized and  outstanding at April 30, 2005  and January 29, 2005; 63 shares issued and outstanding at May 1,  2004  |       |                                                                           | —     |                       |       |                  | —     |   |   |   | 71,903 |   |   |
| Other liabilities                                                                                                                                                                                                                              |       |                                                                           | 24,658     |                       |       |                  | 17,572     |   |   |   | 16,379 |   |   |
| Total liabilities                                                                                                                                                                                                                              |       |                                                                           | 228,939    |                       |       |                  | 226,905    |   |   |   | 301,559 |   |   |
| Commitments and contingencies                                                                                                                                                                                                                  |       |                                                                           | —     |                       |       |                  | —     |   |   |   | — |   |   |
| Stockholders’ equity  (deficit):                                                                                                                                                                                                          |       |                                                                           |       |                       |       |                  |       |   |   |   |   |   |   |
| Common stock, voting, par value $0.001; 300,000  shares  authorized; 53,476, 53,283, and 45,620 shares issued and  outstanding at April 30, 2005, January 29, 2005, and May 1,  2004, respectively                              |       |                                                                           | 53         |                       |       |                  | 53         |   |   |   | 46 |   |   |
| Additional paid-in capital                                                                                                                                                                                                                     |       |                                                                           | 110,611    |                       |       |                  | 109,448    |   |   |   | — |   |   |
| Less stock subscription receivable                                                                                                                                                                                                             |       |                                                                           | —     |                       |       |                  | —     |   |   |   | (225 | ) |   |
| Retained earnings (deficit)                                                                                                                                                                                                                    |       |                                                                           | 15,964     |                       |       |                  | (5,514     | ) |   |   | (9,958 | ) |   |
| Accumulated other comprehensive loss                                                                                                                                                                                                           |       |                                                                           | (704       | )                          |       |                  | (704       | ) |   |   | — |   |   |
| Total stockholders’ equity (deficit)                                                                                                                                                                                                      |       |                                                                           | 125,924    |                       |       |                  | 103,283    |   |   |   | (10,137 | ) |   |
| Total liabilities  and stockholders’ equity                                                                                                                                                                                               |       |                                                                           | $          | 354,863                    |       |                  |       | $ | 330,188 |   |   |   | $ | 291,422 |   |   |

 

See accompanying notes.

3

----

**New York &Company, Inc. and SubsidiariesConsolidated Statements of Cash Flows (Unaudited)**
| ** **                                                                        | ** ** | **Three Months  Ended  April 30, 2005** | ** ** | **Three Months  Ended  May 1, 2004** | ** ** |
|-----------------------------------------------------------------------------------|------------|--------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                        | ** ** | **(Amounts in thousands)**                   | ** ** |
| **Operating activities**                                                          |       |                                                   |       |                                                |       |   |   |   |   |
| Net income                                                                        |       |                                                   | $          | 21,480                                              |       |   |   | $ | 12,994 |   |   |
| Adjustment to reconcile  net income to net cash provided by operating activities: |       |                                                   |       |                                                |       |   |   |   |   |
| Depreciation and amortization                                                     |       |                                                   | 5,446      |                                                |       |   | 4,749 |   |   |
| Amortization / write off of deferred financing costs                              |       |                                                   | 289        |                                                |       |   | 586 |   |   |
| Share-based compensation                                                          |       |                                                   | 212        |                                                |       |   | 121 |   |   |
| Deferred income taxes                                                             |       |                                                   | 164        |                                                |       |   | — |   |   |
| Accrued dividends—redeemable preferred stock                                 |       |                                                   | —     |                                                |       |   | 2,230 |   |   |
| Loss on derivative instrument                                                     |       |                                                   | —     |                                                |       |   | 2,466 |   |   |
| Change in  operating assets and liabilities:                                      |       |                                                   |       |                                                |       |   |   |   |   |
| Accounts receivable                                                               |       |                                                   | (10,243    | )                                                   |       |   | (5,016 | ) |   |
| Inventories, net                                                                  |       |                                                   | (6,129     | )                                                   |       |   | (7,574 | ) |   |
| Prepaid expenses                                                                  |       |                                                   | 2,097      |                                                |       |   | 113 |   |   |
| Accounts payable                                                                  |       |                                                   | (9,063     | )                                                   |       |   | 7,931 |   |   |
| Accrued expenses                                                                  |       |                                                   | (6,061     | )                                                   |       |   | (725 | ) |   |
| Income taxes payable                                                              |       |                                                   | 9,908      |                                                |       |   | 954 |   |   |
| Other assets and liabilities                                                      |       |                                                   | 6,332      |                                                |       |   | 844 |   |   |
| Net cash provided  by operating activities                                        |       |                                                   | 14,432     |                                                |       |   | 19,673 |   |   |
| **Investing  activities**                                                         |       |                                                   |       |                                                |       |   |   |   |   |
| Capital  expenditures                                                             |       |                                                   | (15,411    | )                                                   |       |   | (10,009 | ) |   |
| Net cash used in  investing activities                                            |       |                                                   | (15,411    | )                                                   |       |   | (10,009 | ) |   |
| **Financing  activities**                                                         |       |                                                   |       |                                                |       |   |   |   |   |
| Proceeds from  exercise of stock options                                          |       |                                                   | 51         |                                                |       |   | — |   |   |
| Tax benefit from  exercise of stock options                                       |       |                                                   | 901        |                                                |       |   | — |   |   |
| Proceeds from  issuance of long-term debt                                         |       |                                                   | —     |                                                |       |   | 75,000 |   |   |
| Repayment of  long-term debt                                                      |       |                                                   | —     |                                                |       |   | (82,500 | ) |   |
| Payment of  financing costs                                                       |       |                                                   | —     |                                                |       |   | (2,205 | ) |   |
| Repurchase of  common stock warrant                                               |       |                                                   | —     |                                                |       |   | (20,000 | ) |   |
| Net cash provided  by (used in) financing activities                              |       |                                                   | 952        |                                                |       |   | (29,705 | ) |   |
| Net decrease in cash and cash equivalents                                         |       |                                                   | (27        | )                                                   |       |   | (20,041 | ) |   |
| Cash and cash  equivalents at beginning of period                                 |       |                                                   | 85,161     |                                                |       |   | 98,798 |   |   |
| Cash and cash equivalents at end of period                                        |       |                                                   | $          | 85,134                                              |       |   |   | $ | 78,757 |   |   |
| **Supplemental  disclosure of non-cash financing activities**                     |       |                                                   |       |                                                |       |   |   |   |   |
| Issuance of derivative  instrument for common stock warrant                       |       |                                                   | $          | —                                              |       |   |   | $ | 16,271 |   |   |

 

See accompanying notes.

4

----

**New York &Company, Inc. Notes to Consolidated Financial StatementsApril 30, 2005(Unaudited)**

**1.   Organizationand Basis of Presentation**

New York and Company, Inc. (together with itssubsidiaries, collectively the “Company”) is a leading specialty retailer offashion-oriented, moderately-priced women’s apparel. The Companydesigns and sources its proprietary branded *New York &CompanyTM* merchandise sold exclusively through itsnational network of retail stores. As of April 30, 2005, the Companyoperated 482 retail stores in 45 states. The Company’s target customersare fashion-conscious, value-sensitive women between the ages of25 and 45 with annual household incomes ranging from $40,000 to$75,000. Trademarks referenced in this quarterly report on Form 10-Qappear in italic type and are the property of New York and Company, Inc.or its subsidiaries.

The accompanying consolidated financial statementsinclude the accounts for New York & Company, Inc. and all of itssubsidiaries, including Lerner New York Holding, Inc. (“Lerner Holding”),Lerner New York, Inc., Lernco, Inc., and Nevada Receivable Factoring, Inc.All significant intercompany balances and transactions have been eliminated inconsolidation. Certain amounts in prior periods have been reclassified toconform to the current period presentation.

The consolidated financial statements as of April 30,2005 and May 1, 2004 and for the thirteen weeks (“three months”)ended April 30, 2005 (“first quarter 2005”) and May 1,2004 (“first quarter 2004”) are unaudited and are presented pursuant tothe rules and regulations of the United States Securities and ExchangeCommission (“SEC”). Accordingly, these unaudited consolidated financialstatements should be read in conjunction with the audited consolidated financialstatements and notes thereto for the fiscal year ended January 29, 2005,which were filed with the Company’s Annual Report on Form 10-K with theSEC on April 19, 2005. In the opinion of management, the accompanyingconsolidated financial statements reflect all adjustments, which are of anormal recurring nature, necessary to present fairly the financial condition, resultsof operations and cash flows for the interim 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.

5

----

**2.   Earnings Per Share**

Basicearnings per share are computed by dividing net income by the weighted averagenumber of common shares outstanding for the period. Diluted earnings per shareare calculated based on the weighted average number of outstanding commonshares plus the dilutive effect of stock options and the common stock warrantas if they were exercised. A reconciliation between basic and diluted earningsper share is as follows:
| ** **                            | ** ** | **Three Months  Ended  April 30, 2005**                         | ** ** | **Three Months  Ended  May 1, 2004** | ** ** |
|---------------------------------------|------------|--------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                            | ** ** | **(Amounts in thousands,  except per share amounts)** | ** ** |
| Net income                            |       |                                                                           | $          | 21,480                                              |       |   |   | $ | 12,994 |   |   |
| *Basic EPS*                           |       |                                                                           |       |                                                |       |   |   |   |   |
| Weighted-average  shares outstanding: |       |                                                                           |       |                                                |       |   |   |   |   |
| Basic common shares                   |       |                                                                           | 53,340     |                                                |       |   | 43,761 |   |   |
| Basic EPS                             |       |                                                                           | $          | 0.40                                                |       |   |   | $ | 0.30 |   |   |
| *Diluted EPS*                         |       |                                                                           |       |                                                |       |   |   |   |   |
| Weighted-average  shares outstanding: |       |                                                                           |       |                                                |       |   |   |   |   |
| Basic common shares                   |       |                                                                           | 53,340     |                                                |       |   | 43,761 |   |   |
| Plus impact of stock options          |       |                                                                           | 3,333      |                                                |       |   | 5,292 |   |   |
| Plus impact of common stock warrant   |       |                                                                           | —     |                                                |       |   | 3,856 |   |   |
| Diluted common shares                 |       |                                                                           | 56,673     |                                                |       |   | 52,909 |   |   |
| Diluted EPS                           |       |                                                                           | $          | 0.38                                                |       |   |   | $ | 0.25 |   |   |

 

**3.   Share-Based Compensation**

In December 2004, the Financial AccountingStandards Board (“FASB”) published SFAS No. 123 (Revised 2004), “Share-BasedPayment” (“SFAS 123-R”). SFAS 123-R retains certain requirements ofthe original SFAS No. 123, “Accounting for Stock-Based Compensation”(“SFAS 123”) and requires all forms of share-based payment toemployees, including employee stock options, to be treated as compensation andrecognized in the consolidated statement of operations. The Company adoptedSFAS 123-R in December 2004, utilizing the modified prospective method.Prior to the Company’s adoption of SFAS 123-R, the Company followedSFAS 123 and treated all forms of share-based payments as compensationrecognized in the consolidated statement of operations. Therefore, the adoptionof SFAS 123-R did not have a material impact on the Company’s consolidatedfinancial statements.

The Company recordedshare-based compensation expense in the amount of $0.2 million for thethree months ended April 30, 2005 and $0.1 million for the threemonths ended May 1, 2004.

6

----

**4.   PensionPlan**

TheCompany sponsors a single-employer defined benefit pension plan coveringsubstantially all union employees. The plan provides retirement benefits forunion employees who have attained the age of 18 and completed425 hours of service in the twelve-month period following the dateof employment. The plan provides benefits based on length of service. TheCompany’s funding policy for the plan is to contribute annually the amountnecessary to provide for benefits based on accrued service. The Company doesnot anticipate the need to contribute to the plan for the remainder of thecurrent fiscal year. Net pension cost includes the following components:
| ** **                      | ** ** | **Three Months  Ended  April 30, 2005** | ** ** | **Three Months  Ended  May 1, 2004** | ** ** |
|---------------------------------|------------|--------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                      | ** ** | **(Amounts in thousands)**                   | ** ** |
| Service cost                    |       |                                                   | $          | 73                                                  |       |   |   | $ | 79 |   |   |
| Interest cost                   |       |                                                   | 143        |                                                |       |   | 145 |   |   |
| Expected return on plan  assets |       |                                                   | (188       | )                                                   |       |   | (200 | ) |   |
| Net periodic benefit cost       |       |                                                   | $          | 28                                                  |       |   |   | $ | 24 |   |   |

 

**5.   Income Tax Provision**

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 taxesand permanent tax differences, including accrued dividends—redeemable preferredstock and the loss on derivative instrument which impacted the first quarter of2004.

**6.   Long-TermDebt and Credit Facilities**

On March 16, 2004,certain terms of the Company’s revolving credit facility were amended. Theamended and restated credit facilities currently consist of a three-year$90.0 million revolving credit facility (containing a sub-facilityavailable for the issuance of letters of credit of up to $75.0 million),and a three-year $75.0 million term loan facility. On December 17,2004, the amended and restated credit facilities were further amended to reducecertain interest rates by as much as 50 basis points (“amended andrestated credit facilities”), depending upon the Company’s financialperformance.

On March 16, 2004,the $75.0 million term loan proceeds along with $32.2 million of cashon hand were used to: (i) repurchase from Limited Brands, Inc. the10% subordinated note for $85.0 million, which included $75.0 million ofprincipal and all accrued and unpaid interest; (ii) repurchase from LFAS, Inc.,an affiliate of Limited Brands, Inc., a common stock warrant to acquire 8,050,671 shares of the Company’scommon stock at $0.11 per share (the “common stock warrant”) for$20.0 million, plus a contingent payment (see below); and (iii) pay$2.2 million of fees and expenses associated with the transactions. Suchfees represent financing fees paid primarily to the lenders and werecapitalized as deferred financing costs included in other assets on theconsolidated balance sheet, to be amortized over the life of the loan.

Unamortized deferredfinancing costs related to the 10% subordinated note in the amount of$0.4 million were written off and reported as a loss on modification andextinguishment of debt in the consolidated statement of operations for thethree months ended May 1, 2004.

In connection with thecommon stock warrant repurchase, the Company entered into an agreement withLFAS, Inc., which provided, among other things, if a) on or before December 31,2004, (i) the Company filed a public offering of its common stock, or (ii) theCompany was acquired and b) the related transaction value exceeded$156.8 million, the Company was obligated to pay to LFAS, Inc. anamount in cash equal to approximately 6.38% of the implied equity value of thetransaction over $156.8 million minus $4.5 million. The Companymeasured the fair value of this obligation on March 16, 2004, and reported$16.3 million as a reduction in stockholders’ equity (deficit) and as anobligation on the consolidated 

7

----

balancesheet. Subsequent changes in fair value of the obligation resulted in a$29.4 million charge to earnings, which were reported on the consolidatedstatement of operations as a loss on derivative instrument. In connection withthe consummation of the initial public offering on October 13, 2004, theCompany paid LFAS, Inc. the obligation in the amount of$45.7 million.

On May 19, 2004,Lerner New York, Inc., a subsidiary of New York & Company, Inc.,entered into a new credit facility consisting of a $75.0 million termloan. The term loan proceeds were used to repurchase all but one share of theCompany’s $0.01 par value, non-voting, Series A redeemable preferredstock for $62.5 million, plus $12.5 million of accrued and unpaiddividends. The Company incurred $1.9 million of fees and expenses relatedto the transaction, which were capitalized as deferred financing costs includedin other assets on the consolidated balance sheet, to be amortized over thelife of the loan.

On October 13, 2004,the Company used approximately $75.2 million of the net proceeds receivedfrom the initial public offering to repay the $75.0 million outstandingprincipal amount plus accrued and unpaid interest under the term loan facilityentered into on May 19, 2004. In connection with the repayment of the termloan, $1.7 million of unamortized deferred financing costs were writtenoff and reported as a loss on modification and extinguishment of debt in theconsolidated statement of operations during the third fiscal quarter of lastyear.

**7.  **PreferredStock

On May 19, 2004, theCompany repurchased all but one share of the Company’s Series A redeemablepreferred stock. All outstanding promissory notes were repaid to the Company inconjunction with the closing of the credit facility on May 19, 2004 andthe repurchase of the Series A preferred stock. The remaining one share ofSeries A preferred stock was cancelled immediately prior to theeffectiveness of the initial public offering. Subsequently, the Company revisedits Certificate of Incorporation to authorize 5,000,000 shares ofpreferred stock, $0.001 par value. At April 30, 2005 and January 29,2005, no shares of preferred stock were outstanding.

**8.  **CommonStock

On October 6, 2004,the Company completed the initial public offering of 11,500,000 shares ofcommon stock, of which 6,666,667 shares were offered by the Company and4,833,333 shares were offered by certain selling stockholders at a priceto the public of $17.00 per share. Upon consummation of the initial publicoffering, net proceeds of $105.4 million and $76.4 million weredistributed to the Company and selling stockholders, respectively.

**9.   LegalProceedings**

A case has been filed bythe Center for Environmental Health against Lerner New York, Inc. andseveral other retailers of jewelry products in California. It alleges that leadin one of Lerner New York, Inc.’s jewelry products (a metal charm necklacesuspended on a flexible cord) sold in California violates the state’sProposition 65 statute, which precludes the sale of products in California thatresult in exposures to listed chemicals absent a specified warning label. Thecase is a companion case to two similar cases filed by the California AttorneyGeneral and an organization called As You Sow against several retail outletsselling such jewelry. The Company has not been named as a party in either ofthe companion cases. Violation of the statute exposes the seller to fines aswell as injunctive relief. The complaint does not include a request for aspecific fine amount. The case against Lerner New York, Inc. is in theprocess of mediation that is intended to resolve the case without substantialadditional litigation.

There are other variousclaims, lawsuits and pending actions against the Company arising in the normalcourse of the Company’s business. It is the opinion of management that theultimate resolution of these matters will not have a material effect on theCompany’s financial condition, results of operations or cash flows.

8

----

**ITEM 2**.   MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

**Overview**

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 fourth quarter. Any decreasein sales or margins during this period in any given year could have adisproportionate effect on the Company’s financial condition and results ofoperations. Seasonal fluctuations also affect inventory levels: the Companymust carry a significant amount of inventory before the holiday season sellingperiod.

Net sales for the three months ended April 30,2005 increased 7.1% to $270.0 million, as compared to$252.1 million for the same period last year. Comparable store salesincreased 3.9% in the three months ended April 30, 2005, as compared to acomparable store sales increase of 14.1% in the same period last year. Salesper selling square foot for the three months ended April 30,2005 increased 11.8% to $85, as compared to $76 during the sameperiod last year. Sales per average store for the three months ended April 30,2005 increased 5.2% to $0.6 million, as compared to $0.5 millionfor the same period last year. Net sales of apparel product categoriesincreased 5.9% to $236.2 million for the three months ended April 30,2005, as compared to $223.1 million for the same period last year. Netsales of accessories product categories for the three months ended April 30,2005 increased 16.6% to $33.8 million, as compared to$29.0 million for the same period last year.

The Company’s ability to control buying and occupancycosts, corporate overhead and store operating expenses is evident by its firstquarter results. Gross profit for the three months ended April 30,2005 increased 7.1% to $98.3 million, or 36.4% of net sales, ascompared to $91.8 million, or 36.4% of net sales, for the same period lastyear, as favorability in buying and occupancy costs was offset by increasedmarkdowns. Selling, general and administrative expenses for the three monthsended April 30, 2005 increased to $60.9 million, or 22.5% of net sales, ascompared to $59.7 million, or 23.7% of net sales, for the same period last year.Operating income for the three months ended April 30, 2005 increased16.5% to $37.4 million, or 13.9% of net sales, as compared to$32.1 million, or 12.7% of net sales, for the same period last year.

As of April 30, 2005, the Company owned$99.5 million of inventory, as compared to $85.8 million of inventoryas of May 1, 2004. This planned increase is attributed primarily tosupporting new store openings, changes in inventory lead time planning, productcost and mix. The Company opened eight new stores, remodeled eight stores, andclosed two stores during the three months ended April 30, 2005, ending thequarter operating 482 stores in 45 states.

The Company’s business is impacted by economicconditions, which affect the level of consumer spending on the merchandise theCompany offers. These economic factors include interest rates, economic growth,unemployment levels, energy prices, consumer confidence and consumer spending,among others. Consumer preferences and economic conditions may change from timeto time in the markets in which the Company operates and may negatively impactits net sales and profitability. The Company currently does not anticipate anytrends that cause it material concerns. However, as economic conditions change,there can be no assurance that future trends and fluctuations in economicfactors will not have a material adverse effect on the Company’s financialcondition and results of operations. The Company’s strategy is to focus on itscustomers, current fashion trends, merchandise testing, value pricing andresponsive inventory management to enable the Company to react quickly tochanges as they occur.

Quotas on textiles andclothing, under the World Trade Organization Agreement on Textiles and Clothingas implemented on January 1, 1995, were phased out over a period of tenyears, ending 

9

----

January 1, 2005.This phase-out eliminated existing restrictions on the Company’s ability toimport clothing. Chinese textile imports into the U.S. have increasedsignificantly in the first quarter of 2005. The U.S. federal interagencycommittee CITA (Committee for Implementation of Textile Agreements) has imposedsafeguard limitations on China, and the Company believes CITA will continue toimpose restrictions on China. The Company is adjusting its inventory receiptplanning and supply chain accordingly and continues to rely on its diversifiedmanufacturing base to mitigate risks associated with these restrictions. Atthis time, the Company cannot assess how potential future restrictions willimpact its operations.

***General***

*Net Sales.  *Netsales consist of sales from comparable and non-comparable stores. A store isincluded in the comparable store sales calculation after it has completed13 full fiscal months of operation from its 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, salesfrom closed stores and stores closed during periods of remodeling. Net salesare recorded when the customer takes possession of the merchandise and thepurchases are paid for, primarily with either cash or credit card. Revenue forgift certificate sales and store credits is recognized at redemption. Prior toredemption, gift certificate sales and store credits are recorded as a liability.A reserve is provided for projected merchandise returns based on priorexperience.

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

*Gross Profit.  *Grossprofit represents net sales less cost of goods sold, buying and occupancycosts.

*Selling,General and Administrative Expenses.  *Selling, generaland administrative expenses include selling, store management and corporateexpenses, including payroll and employee benefits, employment taxes, managementinformation systems, marketing, insurance, legal, store pre-opening and othercorporate level expenses. Store pre-opening expenses include store levelpayroll, grand opening event marketing, travel, supplies and other storeopening expenses.

10

----

**Results ofOperations**

Thefollowing tables summarize the Company’s results of operations as a percentageof net sales and selected store operating data for the three months ended April 30,2005 and May 1, 2004:
| ** **                                         | ** ** | **Three months  ended  April 30, 2005** | ** ** | **Three months  ended  May 1, 2004** | ** ** |
|----------------------------------------------------|------------|--------------------------------------------------------|------------|-----------------------------------------------------|------------|
| Net sales                                          |       |                                                   | 100.0      | %                                                   |       |   | 100.0 | % |   |
| Cost of goods  sold, buying and occupancy costs    |       |                                                   | 63.6       | %                                                   |       |   | 63.6 | % |   |
| Gross profit                                       |       |                                                   | 36.4       | %                                                   |       |   | 36.4 | % |   |
| Selling, general  and administrative expenses      |       |                                                   | 22.5       | %                                                   |       |   | 23.7 | % |   |
| Operating income                                   |       |                                                   | 13.9       | %                                                   |       |   | 12.7 | % |   |
| Interest expense,  net                             |       |                                                   | 0.5        | %                                                   |       |   | 0.7 | % |   |
| Accrued dividends—redeemable  preferred stock |       |                                                   | —     | %                                                   |       |   | 0.9 | % |   |
| Loss on  modification and extinguishment of debt   |       |                                                   | —     | %                                                   |       |   | 0.1 | % |   |
| Loss on  derivative instrument                     |       |                                                   | —     | %                                                   |       |   | 1.0 | % |   |
| Income before income taxes                         |       |                                                   | 13.4       | %                                                   |       |   | 10.0 | % |   |
| Provision for  income taxes                        |       |                                                   | 5.4        | %                                                   |       |   | 4.8 | % |   |
| Net income                                         |       |                                                   | 8.0        | %                                                   |       |   | 5.2 | % |   |

 
| ** **                                    | ** ** | **Three months   ended   April 30, 2005**            | ** ** | **Three months   ended   May 1, 2004** | ** ** |
|-----------------------------------------------|------------|-------------------------------------------------------------------------------|------------|-----------------------------------------------------------------|------------|
| ** **                                    | ** ** | **(Dollars in thousands,  except square foot data)** | ** ** |
| **Selected  operating data:**                 |       |                                                                          |       |                                                            |       |   |   |   |   |
| Total net sales  growth                       |       |                                                                          | 7.1        | %                                                               |       |   | 12.6 | % |   |
| Comparable store  sales increase              |       |                                                                          | 3.9        | %                                                               |       |   | 14.1 | % |   |
| Net sales per  average selling square foot(1) |       |                                                                          | $          | 85                                                              |       |   |   | $ | 76 |   |   |
| Net sales per  average store(2)               |       |                                                                          | $          | 564                                                             |       |   |   | $ | 536 |   |   |
| Average selling square  footage per store(3)  |       |                                                                          | 6,631      |                                                            |       |   | 7,018 |   |   |

 
| ** **                                                        | ** ** | **Three months  ended  April 30, 2005** | ** ** | **Three months  ended  May 1, 2004** | ** ** |
|-------------------------------------------------------------------|------------|--------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                        | ** ** | **Store  Count**                                       | ** ** | **Selling  Square Feet**                       | ** ** | **Store  Count** | ** ** | **Selling  Square Feet** | ** ** |
| **Store count and selling square feet:** |       |                                                   |       |                                                |       |   |   |   |   |   |   |   |   |
| Stores open, beginning  of period                                 |       |                                                   | 476        |                                                |       | 3,189,770 |   |   | 468 |   |   | 3,318,466 |   |
| New stores                                                        |       |                                                   | 8          |                                                |       | 32,908 |   |   | 5 |   |   | 24,837 |   |
| Closed stores                                                     |       |                                                   | (2         | )                                                   |       | (10,644 | ) |   | (1 | ) |   | (6,677 | ) |
| Net impact of  remodeled stores on selling square feet            |       |                                                   | —     |                                                |       | (15,823 | ) |   | — |   |   | (23,983 | ) |
| Stores open, end  of period                                       |       |                                                   | 482        |                                                |       | 3,196,211 |   |   | 472 |   |   | 3,312,643 |   |

----

(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 foot per store is defined as end of period selling square feetdivided by end of period number of stores.

11

----

***Three Months Ended April 30, 2005 Comparedto Three Months Ended May 1, 2004***

*Net Sales.  *Netsales for the three months ended April 30, 2005 increased 7.1% to$270.0 million, as compared to $252.1 million for the three monthsended May 1, 2004. The increase is attributable to a $9.6 million, or3.9%, increase in comparable store sales and an $8.3 million, or 116.8%,increase in non-comparable store sales. In the comparable store base,average dollar sales per transaction increased 7.9%, while the number oftransactions declined 3.5%, as compared to the same period last year.Comparable store sales growth was strongest in casual apparel and accessoryproducts for the three months ended April 30, 2005. The increase innon-comparable store sales was primarily driven by new stores that had not beenopen for 13 full fiscal months as of April 30, 2005 and therefore were notincluded in the comparable store base, offset by closed stores.

*Gross Profit.  *Grossprofit increased $6.5 million to $98.3 million, or 36.4% of netsales, for the three months ended April 30, 2005, as compared to$91.8 million, or 36.4% of net sales, for the three months ended May 1,2004. The increase in gross profit is primarily attributable to the increase innet sales during the three months ended April 30, 2005, as compared to thesame period last year. Buying and occupancy costs improved as a percentage ofnet sales for the three months ended April 30, 2005, but was offset by adecrease in merchandise margin, as compared to the same period last year. Thedecrease in merchandise margin was the result of higher markdowns this year ascompared to the same period last year.

*Selling, General and AdministrativeExpenses.  *Selling, general and administrative expensesincreased $1.2 million to $60.9 million, or 22.5% of net sales, forthe three months ended April 30, 2005 from $59.7 million, or23.7% of net sales, for the three months ended May 1, 2004. As apercentage of net sales, selling, general and administrative expenses decreasedfor the three months ended April 30, 2005, as compared to the same periodlast year, due to the Company’s ability to control corporate overhead and storeoperating expenses. The $1.2 million increase was primarily the result of a$2.3 million increase in marketing expenses to support the Company’sbusiness plan, partially offset by a $1.0 million decrease in expenses dueto the termination of certain advisory services in connection with the Company’sinitial public offering.

*Operating Income.  *Theincrease in gross profit more than offset higher selling, general andadministrative expenses, resulting in a $5.3 million increase in operatingincome to $37.4 million, or 13.9% of net sales, for the three months endedApril 30, 2005, as compared to $32.1 million, or 12.7% of netsales, for the three months ended May 1, 2004.

*Interest Expense, Net.  *Netinterest expense decreased $0.4 million to $1.4 million for the threemonths ended April 30, 2005 from $1.8 million in the threemonths ended May 1, 2004. The decrease in net interest expense is due tofluctuations in borrowings and reduction in interest rates obtained through theCompany’s refinancing activities on March 16, 2004 and May 19, 2004.

*Accrued Dividends—RedeemablePreferred Stock.  *Accrued dividends—redeemable preferredstock was zero for the three months ended April 30, 2005, as comparedto $2.2 million for the three months ended May 1, 2004. On May 19,2004, the Company redeemed substantially all of its Series A redeemablepreferred stock. Immediately prior to the effectiveness of the Company’sinitial public offering, the remaining one outstanding share of the Company’s Series Aredeemable preferred stock was cancelled.

*Loss on Modification andExtinguishment of Debt.  *On March 16, 2004, theCompany repaid its $75.0 million, 10% subordinated note due 2009 withproceeds from the Company’s amended and restated credit facility, whichresulted in a $0.4 million charge associated with the write-off ofunamortized deferred financing costs. The Company had no such charges duringthe three months ended April 30, 2005.

*Loss on Derivative Instrument.  *Inconnection with the repurchase of the common stock warrant on March 16,2004 from LFAS, Inc., the Company entered into an agreement with LFAS, Inc.that required it to pay LFAS, Inc. an amount based on the implied equityvalue of the Company upon a sale of the 

12

----

Company or theconsummation of a public offering. The Company measured the fair value of thecontingent payment (“derivative instrument”) on March 16, 2004 andreported $16.3 million as a reduction to stockholders’ equity and as acurrent liability. During the three months ended May 1, 2004, the Companyremeasured the fair value of the derivative instrument, which resulted in acharge to earnings of $2.5 million. The Company remeasured the fair value ofthe derivative instrument during the second and third quarters of fiscal year2004, which resulted in additional charges to earnings of $14.3 millionand $12.6 million, respectively. In connection with the consummation ofthe initial public offering, the Company paid LFAS, Inc. the obligation inthe amount of $45.7 million and, as such, did not incur any such chargesduring the three months ended April 30, 2005.

*Provision for Income Taxes.  *Theeffective tax rate for the three months ended April 30, 2005 was40.3% as compared to 48.6% for the three months ended May 1, 2004. Thehigher rate incurred in the first quarter of the prior year was a direct resultof non-deductible amounts relating to the loss on derivative instrument of $2.5million and accrued dividends—redeemable preferred stock of $2.2 million. TheCompany incurred no such non-deductible expenses during the three months ended April 30,2005, which resulted in a lower effective rate.

*NetIncome.  *For the reasons discussed above, net incomeincreased $8.5 million to $21.5 million, or 8.0% of net sales, forthe three months ended April 30, 2005, from $13.0 million, or5.2% of net sales, for the three months ended May 1, 2004.

**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 and remodeling of existing stores.Historically, the Company has financed these requirements from internallygenerated cash flow. The Company intends to fund its ongoing capital andworking capital requirements, as well as debt service obligations, primarilythrough cash flows from operations, supplemented by borrowings under theCompany’s revolving credit facility, if needed. The Company is in compliancewith all debt covenants as of April 30, 2005.

Thefollowing tables contain information regarding the Company’s liquidity andcapital resources:
| ** **                 | ** ** | **April 30,  2005**             | ** ** | **January 29,  2005** | ** ** | **May 1,  2004** | ** ** |
|----------------------------|------------|--------------------------------------|------------|----------------------------|------------|-----------------------|------------|
| ** **                 | ** ** | **(Amounts in thousands)** | ** ** |
| Cash and cash  equivalents |       | $                                    | 85,134     |                       |       | $                     | 85,161     |   |   | $ | 78,757 |   |
| Working capital            |       | $                                    | 103,414    |                       |       | $                     | 83,105     |   |   | $ | 58,919 |   |

 
| ** **                                           | ** ** | **Three months  ended  April 30, 2005** | ** ** | **Three months  ended  May 1, 2004** | ** ** |
|------------------------------------------------------|------------|--------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                           | ** ** | **(Amounts in thousands)**                   | ** ** |
| Net cash provided  by operating activities           |       |                                                   | $          | 14,432                                              |       |   |   | $ | 19,673 |   |   |
| Net cash used in  investing activities               |       |                                                   | $          | (15,411                                             | )          |   |   | $ | (10,009 | ) |   |
| Net cash provided by  (used in) financing activities |       |                                                   | $          | 952                                                 |       |   |   | $ | (29,705 | ) |   |

 

As of May 1, 2004,the fair value of the derivative instrument entered into in connection with therepurchase of the common stock warrant on March 16, 2004 was$18.7 million and is reported in current liabilities on the consolidatedbalance sheet. On the consolidated statement of cash flows for the three monthsended May 1, 2004, the $16.3 million initial fair value of thederivative instrument is reported as a non-cash financing activity and the$2.5 million loss on derivative instrument is reported as an adjustment toreconcile net income to net cash provided by operating activities. The$20.0 million cash payment 

13

----

relatedto the repurchase of the common stock warrant on March 16, 2004 isreported as cash used in financing activities, as described below.

***Operating Activities***

Net cash provided byoperating activities was $14.4 million for the three months ended April 30,2005, as compared to net cash provided by operating activities of$19.7 million for the three months ended May 1, 2004. The decrease incash flow provided by operating activities for the three months ended April 30,2005, as compared to the same period last year, is primarily related tochanges in accounts receivable, accounts payable, accrued expenses andinventory, partially offset by an $8.5 million increase in net income.

***Investing Activities***

Cash used in investing activities was$15.4 million for the three months ended April 30, 2005, ascompared to $10.0 million of cash used in investing activities for thethree months ended May 1, 2004. These amounts include the capitalizationof rent related to build-out periods (or rent holidays) for the Company’sstores and exclude construction allowances, which are reported in operatingactivities on the consolidated statement of cash flows. The increase primarilyreflects capital expenditures related to the construction of new stores and theremodeling of existing stores.

The Company opened eight new stores and completedeight remodels in the three months ended April 30, 2005. The Company plansto open 45 to 50 new stores and remodel 40 to 50 stores during fiscal year2005, ending the year operating 515 stores.

The Company projects totalcapital expenditures, including capitalized rent related to build-out periods(or rent holidays) for its stores, to be approximately $79.0 million infiscal year 2005, as compared to $54.3 million in fiscal year 2004. Theseamounts exclude construction allowances. Historically, the Company has financedsuch capital expenditures with cash from operations and borrowings under its creditfacility, if needed. The Company believes that it will continue to financeongoing capital expenditures in this manner.

***Financing Activities***

Net cash provided byfinancing activities was $1.0 million for the three months ended April 30,2005, as compared to net cash used in financing activities of$29.7 million for the three months ended May 1, 2004. Net cashprovided by financing activities for the three months ended April 30, 2005resulted from the exercise of stock options and the related tax benefit tothe Company. Net cash used in financing activities for the three months ended May 1,2004 represents proceeds of $75.0 million from the amended andrestated credit facilities entered into on March 16, 2004; the repaymentof the $75.0 million, 10% subordinated note, plus accrued and unpaidinterest; $20.0 million used to repurchase the common stock warrant fromLFAS, Inc.; and the payment of $2.2 million in fees and expensesrelated to these transactions.

**Long-Term Debt andCredit Facilities**

The Company’s amended and restated credit facilitiescurrently consist of a three-year $90.0 million revolving credit facility(containing a sub-facility available for the issuance of letters of credit ofup to $75.0 million), and a three-year $75.0 million term loanfacility. As of April 30, 2005, the Company had availability under itsrevolving credit facility of $43.6 million, net of letter of creditaccommodations outstanding of $12.1 million, as compared to availabilityof $34.7 million, net of letter of credit accommodations outstanding of$21.9 million, as of May 1, 2004. The reduction in its letters ofcredit reflects changes in the Company’s terms with vendors.

14

----

The revolving loans under the amended and restatedcredit facilities bear interest, at the Company’s option, either at a floatingrate equal to the Eurodollar rate plus a margin of between 1.50% 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%,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 annum, depending upon the Company’s financial performance. The term loanbears interest at a floating rate equal to the greater of 6.75% or theEurodollar rate plus 5.00% per year. For so long as any default under therevolving credit facility continues, at the option of the agent or lenders,interest on the revolving loans may increase to 4.00% per year above theEurodollar rate for Eurodollar rate loans and 2.00% per year above the Primerate for all Prime rate loans, and interest on the term loan may increase tothe greater of 8.75% or the Eurodollar rate plus 7.00% per year.

The Company’s amended and restated credit facilitiescontain certain covenants, including restrictions on the Company’s ability topay dividends on its common stock, incur additional indebtedness and to prepay,redeem or repurchase other debt. Subject to such restrictions, the Company mayincur more debt for working capital, capital expenditures, acquisitions, and forother purposes.

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 amended and restated credit facilities. In addition, New York &Company, Inc. and certain of its subsidiaries have fully andunconditionally guaranteed the credit facilities, and such guarantees are jointand several.

**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 and the fair market value of assetsacquired. Management bases its estimates 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 financial condition and results ofoperations. These estimates and assumptions are the same as those described inthe Company’s Annual Report on Form 10-K filed with the SEC on April 19,2005.

*InventoryValuation.  *Inventories are valued at the lower of costor market, on a weighted average cost basis using the retail method. TheCompany calculates inventory costs on an individual item-class level. The Companyrecords a charge to cost of goods sold, buying and occupancy costs when apermanent retail price reduction is reflected in the stores. In addition,management makes estimates and judgments regarding initial markups, markdowns,future demand and market conditions. These assumptions can have a significantimpact on financial condition and current and future operating results. TheCompany’s estimates have been historically valid. At the end of each season,goods related specifically to that season are marked down and valued at theestimated current retail value. The use of the retail method and the recordingof markdowns effectively values the inventory at the lower of cost or market.In addition, an inventory loss estimate is recorded each period. Theseestimates are adjusted based upon physical inventories performed twice perfiscal year.

15

----

*Impairment of Long-Lived Assets.  *TheCompany evaluates long-lived assets in accordance with SFAS No. 144, “Accountingfor the 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 sum of the expected future undiscounted cash flow is lessthan the carrying amount of the asset, an impairment loss, equal to the excessof the carrying amount over the fair value of the asset, is recognized. Animpairment loss could have a material adverse impact on the Company’s financialcondition and results of operations. The Company’s evaluation for the threemonths ended April 30, 2005 resulted in no material asset impairmentcharge.

*Goodwill and Other Intangible Assets.  *SFASNo. 142, “Goodwill and Other Intangible Assets,” prohibits theamortization of goodwill and intangible assets with indefinite lives. ThisStatement requires that these assets be reviewed for impairment at leastannually. The Company’s intangible assets relate primarily to the *New York & Company* trademark. The trademark wasinitially valued using the “relief from royalty method” by an independentappraiser. The Company tests for impairment annually. Management’s estimate offuture cash flow is based on historical experience, knowledge, and market data.These estimates can be affected by factors such as those outlined in “CautionaryNote Regarding Forward-Looking Statements and Risk Factors.” An impairment losscould have a material adverse impact on the Company’s financial condition and resultsof operations. The Company’s fiscal year 2004 tests did not result in anyimpairment charge and the Company has no reason to believe any impairmentoccurred during the three months ended April 30, 2005.

*IncomeTaxes.  *Income taxes are calculated in accordance withSFAS No. 109, “Accounting for Income Taxes,” which requires the use of theliability method. Deferred tax assets and liabilities are recognized based onthe difference between the financial statement carrying amounts of assets andliabilities and their respective tax bases. Inherent in the measurement ofdeferred balances are certain judgments and interpretations of enacted tax lawsand published guidance with respect to applicability to the Company’s operations.Deferred tax assets are believed to be fully realizable as management expectsfuture taxable income will be sufficient to recover the asset values and, assuch, no related valuation allowance has been provided for.

**Adoption of NewAccounting Standards**

In December 2004, theFASB published SFAS No. 123 (Revised 2004), “Share Based Payment” (“SFAS123-R”). SFAS 123-R retains certain requirements of the original SFAS 123 andrequires all forms of share based payment to employees, including employeestock options, to be treated as compensation and recognized in the consolidatedstatement of operations. The Company adopted SFAS 123-R in December 2004,utilizing the modified prospective method. Prior to the Company’s adoption ofSFAS 123-R, the Company followed SFAS 123 and treated all forms ofshare-based payments as compensation recognized in the consolidated statementof operations. Therefore, the adoption of SFAS 123-R did not have amaterial impact on the Company’s consolidated financial statements.

16

----

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

*InterestRates.  *The Company’s market risks relate primarily tochanges in interest rates. The Company’s amended and restated credit facilitiescarry floating interest rates that are tied to the Eurodollar rate and thePrime rate and therefore the consolidated financial statements will be exposedto changes in interest rates. A 1.0% interest rate increase would increaseinterest expenses by approximately $0.8 million annually. The Company historicallyhas not engaged in interest rate hedging activities.

*CurrencyExchange Rates.  *The Company has historically not beenexposed to currency exchange rate risks with respect to inventory purchases assuch expenditures have been and continue to be denominated in U.S. Dollars. TheCompany purchases some of its inventory from suppliers in China, for which itpays U.S. Dollars. Currently, the Chinese Yuan has a fixed exchange rateagainst the U.S. Dollar. In the event that China were to adjust the exchangerate of the Chinese Yuan against the U.S. Dollar or allow it to float, theCompany could experience fluctuations in the cost of inventory purchased fromChina.

**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) under theSecurities 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) underthe Securities Exchange Act of 1934, as amended) during the fiscal quarter towhich this report relates that have materially affected, or are reasonablylikely to materially affect, the Company’s internal controls over financialreporting.

17

----

**PART II.**

**OTHERINFORMATION**

**ITEM 1.   LEGAL PROCEEDINGS**

There have been nomaterial changes in the Company’s legal proceedings from what was reported inits Annual Report on Form 10K filed with the SEC on April 19, 2005.

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

None.

**ITEM 3.   DEFAULTS UPONSENIOR SECURITIES**

None.

**ITEM 4.   SUBMISSION OFMATTERS TO A VOTE OF SECURITY HOLDERS**

None.

**ITEM 5.   OTHERINFORMATION**

None.

**ITEM 6.   EXHIBITS**

Thefollowing exhibits are filed with this report and made a part hereof.
| 31.1 |   | Certification of Chief Executive Officer Pursuant to  Rules 13a-14(a) and 15d-14(a) promulgated under the  Securities Exchange Act of 1934, as amended.                                |
|------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.2 |   | Certification of Chief  Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a)  promulgated under the Securities Exchange Act of 1934, as amended.                                |
| 32   |   | 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. |

 

18

----

**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:                             | June 13, 2005 |

 

19

----