I'll be brief today: I think the reaction to same-store sales results from Hidden Gems selection New York & Co. (NYSE:NWY) is unwarranted. The company did miss the estimates that analysts had created for it, but there's much more to this (or any) company than one month's worth of same-store sales results.

Here's the meat of the company's same-store-sales press release:

Richard P. Crystal, Chairman and CEO stated: "We are pleased with our performance for September as sales were up 2.3% on a comparable store basis versus a highly promotional month the prior year. Our offerings resonated well with our customers across key merchandising categories generating significantly higher margins than last year. As a result, we expect third quarter diluted earnings per share to be at the high end of our previously issued earnings guidance range."

Right up front, we see that comparable-store sales were 2.3%, and according to the estimates I can find, expectations were for 3%. That's a disappointment, but not a very large one. The more important part of the paragraph is the portion that mentions significantly higher margins than last year. You don't need to have monster same-store sales if you're increasing margins, and if you can increase both margins and same-store sales, you're doing pretty well.

New York & Co. hasn't exactly been firing on all cylinders like Guess? (NYSE:GES) or TJX Companies (NYSE:TJX), which reported same-store sales in the neighborhood of 10%. But let's take another look at New York & Co.'s statement that margins were significantly higher than last year. Here is the company's gross margin during the last few quarters:


Gross Margin

Q2 2006


Q1 2006


Q4 2005


Q3 2005


Q2 2005


Q1 2005


Last year's third quarter saw margins of 29.3%, so I'm going to go out on a limb and assume that by "significantly higher," management means something greater than 30% -- maybe even results akin to the first half of 2005, when things were going well. If I included another table with inventory balances, it would become clear that the company had to discount because it needed to move that inventory, and discounting means lower margins. Trust doesn't come easily when you've had a few bad quarters; however, if the company is starting to get things right going into the most important selling season of the year, I'd consider that a positive development.

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Nathan Parmelee owns shares in New York & Co., but has no interest in any of the other companies mentioned. The Motley Fool has an ironclad disclosure policy.