New York's Marginal Month

Follow the stock market long enough, and you learn a few things. First of all, you learn that good ain't good enough, at least not if Mr. Market expects better. If Mr. Market wants 3% growth, 2.6% won't cut it.

Of course you also learn that there are no rules -- or at least there are those exceptions that prove them, and that's what we seem to be seeing today with Motley Fool Hidden Gems recommendation New York & Co. (NYSE: NWY). The company "missed" analyst expectations but sent the share price up almost 5% anyway. My best guess is that the 5% is just a sigh of relief, as in "whew, it could have been worse."

If you're new to this beleaguered stock, you might want to catch up on the wild ride. Basically, sales growth has been sluggish at the women's retailer, and with operations seeming to straddle the old fulcrum on operating leverage, that's meant some big swings in profit guidance, with the expected whipsaw for share price.

But today, New York & Co. reported a 2.6% increase in same-store sales for April, pacing a total revenue gain of 12.7%, for a total of $91.7 million. That might sound great, but for the quarter, the numbers are a bit more grim: a 9.2% decrease in comps and a 1.1% overall sales decrease to $267 million.

Management (no surprise) looked on the bright side of things, attributing the improving sales to both the "strength of our new deliveries" and the Easter Holiday shift. I'm going to be a Mr. Snickerpuss here and assume it was the Easter traffic that did the good.

Being a New York & Co. stockholder, and married to a woman of the female gender (as Dave Barry might say), I take a trip into New York & Co. just about every time I'm dragged to the mall for my monthly supercut. And I've continued to see this company as a retailer struggling to find its identity. Models have been swapped. (Thank goodness. Eva Longoria's larger-than-life photos made her look like an ill-dressed fireplug.) The clothing lines have been all over the map.

Now, I never want to read too much into my personal observations on a single store, but when they're born out by the numbers, I start to pay more attention. My problem is this: I don't have much confidence that New York and Co. understands its audience the way stores like Ann Taylor (NYSE: ANN), Talbots (NYSE: TLB), Nordstrom (NYSE: JWN), or even Target (NYSE: TGT) do. Unfortunately, the more I see management flounder, the more I wonder whether I'm not looking at a J. Jill situation. (I'll resist the comparison to a still-flagging Gap (NYSE: GPS) because at least that firm's got some semi-reliable free cash flow.)

Quite honestly, I believe we're looking at a short-term bump-up here. I think the recent shuffle in design and merchandizing management offers an opportunity for improvements, but I can only wish it's coming. As I've written before, hope is a pretty poor investment thesis. Personally, I'm giving the firm a few more months to earn my love. After that, if I don't see some reliable improvements, I'll be redeploying those dollars in places where I've got more than hope to bank on.

New York & Co. is a Motley Fool Hidden Gems recommendation. Gap is an Inside Value recommendation. You can take either market-beating newsletter for a test drive -- free of charge.

At the time of publication, Seth Jayson had shares of New York & Co., but no positions in any other company mentioned here. View his stock holdings and Fool profile here. Fool rules are here.