Shareholders of New York & Company, Inc. (NYSE:NWY) are having a great time this year as the company’s share price has experienced a sweet gain of nearly 48%. Interestingly, Steven Cohen initiated a long position in the company while Joel Greenblatt added the company to his holdings in the first quarter of 2013. Is New York & Company a good buy even after its significant rise? Let’s find out.
New York & Company, Inc. (NYSE:NWY) is one of the leaders in specialty retailing of women’s apparel and accessories, operating around 519 retail stores in 43 states in the U.S. In the first quarter of 2013, its revenue stayed flat at around $227 million compared to the first quarter last year. However, its bottom line improved from a loss of $211,000 to a profit of nearly $1.6 million in Q1 2013. The improvement in net income in the first quarter this year was due to lower cost of goods sold and the benefit of the reversal of uncertain tax position.
New York & Company expects its comparable store sales to grow in low to mid single-digits in the next quarter. During the second quarter, the company estimated that it would have one new store opened, two existing stores remodeled, and eight stores closed. The operating loss is expected to decline from $4.4 million in the second quarter last year to $4 million in the ongoing quarter.
Strong balance sheet
There are three reasons that make me bullish about New York & Company, Inc. (NYSE:NWY). Firstly, the company’s capital structure is quite conservative. As of May 2013, it had $108.8 million in total stockholders’ equity, $39.5 million in cash, and no debt. The deferred rent and accounts payable came in at $47 million and $66.2 million, respectively. The intangible assets were only $14.9 million.
Ann Inc (NYSE:ANN), one of New York & Company, Inc. (NYSE:NWY)’s peers, also has a debt-free balance sheet. Ann Inc (NYSE:ANN) had $385 million in equity, $167 million in cash, and no debt. However, another women’s fashion retailer, Limited Brands, Inc. (NYSE:LTD), employs a lot of debt in its operations. Limited Brands has negative equity of more than $1 billion, only $773 million in cash, and nearly $4.5 billion in long-term debt. Investors should not be worried, as Limited Brands, Inc. (NYSE:LTD) has been generating consistent positive free cash flow and increasing EBITDA. Its net debt/EBITDA is only 1.88.
The most efficient operation
In assessing retailers, investors should play close attention to the cash conversion cycle. The cash conversion cycle tells us how quickly the retailer could convert its receivables and inventories into cash. The lower the ratio, the more quickly the operation could generate cash. What impresses me is the fact that New York & Company, Inc. (NYSE:NWY) had a very low CCC of only 7 days. Ann Inc (NYSE:ANN) has the highest CCC of more than 42 days, while Limited Brands, Inc. (NYSE:LTD)’ CCC is nearly 35 days.