First-quarter improvement
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.
Right CEO
Last but not least, its CEO, Gregory Scott, with more than 20 years of retail experience, has been leading the transformation of New York & Company, Inc. (NYSE:NWY) with his vision to transition from a business to a brand, building brand awareness. In February, the company announced a multi-year collaboration with actress Eva Mendes to design new seasonal collection at the beginning of Fall this year. New York & Comapny’s CEO commented: “This collaboration with Eva and the forthcoming collections help us achieve that mission, as well as expand into evening solutions that leverage Eva’s stunning red carpet influences.”
At $5.70 per share, New York & Company is worth around $350.2 million on the market. The market values the company at 7.36 times EV/EBITDA. Limited Brands, Inc. (NYSE:LTD) is trading nearly $50 per share with a total market cap of $14.40 billion. It has a lower EV multiple than New York & Company, Inc. (NYSE:NWY) at 6.8 times EV/EBITDA. Ann Inc (NYSE:ANN) seems to be the cheapest among the three. With a share price of $30.80 per share, ANN is worth $1.4 billion on the market. The market values ANN at only 4.6 times EV/EBITDA.
My Foolish take
New York & Company, Inc. (NYSE:NWY) seems to be on the right “fashion trend” for both customers and investors. With the most efficient operations with the lowest CCC, a strong balance sheet, and a reasonable valuation, it seems to be a good pick for investors. However, among the three, Ann Inc (NYSE:ANN) also seems to be a nice stock with debt-free operations and the lowest EV multiple.
Anh HOANG has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
The article 3 Things to Like About This Fashion Retailer originally appeared on Fool.com.
Anh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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