Never known for its long-term investing habits, when it comes to retailers, Wall Street can totally lose its composure and plunge headfirst into ultra-short-term-icity. Nowhere else do you see such fixation on month-by-month results. Is it any wonder, then, that when a company like New York & Co. (NYSE:NWY) warns that it will earn less than expected over the next three months, Wall Street kicks it down the stairs?
That's pretty much what happened last week. Although the apparelier reported a respectable fourth quarter of 11% growth in both sales and earnings per share, NYC dropped 4% (and counting) on concerns that next quarter's news might not be quite so good. Ridiculous.
A more Foolish approach
Rather than indulge the Street's hissy fit, I say we take a longer-term view. Rather, let's break out the full-length mirror and see how well full-year 2006 looked on New York & Co:
- Sales rose 5.5% for the year.
- Same-store sales (a.k.a. comps) declined 2.6%, meaning NYC relied entirely on sales from new stores to keep its growth headed upward.
- Profits per diluted share dropped 25%.
Go long
Elsewhere in the earnings report, and echoing today's theme of taking the long view, New York & Co. declared that effective May 11, it will no longer play the month-by-month comps game. After that date, same-store sales will be reported once per quarter and that's it. Now, if only management could only get up the gumption to follow the lead of S1 (NASDAQ:SONE), America's Car-Mart (NASDAQ:CRMT), Coca-Cola (NYSE:KO), and Washington Post (NYSE:WPO) and eschew giving quarterly earnings guidance ...
It hasn't, by the way. In fact, NYC predicts profits of $0.11 to $0.14 per share for the fiscal first quarter, and $0.85 to $0.95 for the year. Management expects to achieve these goals by growing its comps in the low-to-mid single digits and its firmwide sales in the upper single digits.
Free cash flow-wise, the firm didn't give us an estimate for this metric, but it did say that capital expenditures for the year should cost it $71 million to $76 million -- a significant decrease from last year's $83 million. One hopes that as a result, NYC can do better than generate just $1 million in free cash flow, as it did last year. Sure, I understand that funding a store-count expansion costs money (and cash flow). Even so -- and feel free to call me stingy if you like -- I'd still like to see something more like the $27 million in free cash flow generated in fiscal 2005.
What did we expect to see in New York last quarter, and what did we get? Find out in:
- Foolish Forecast: New York on Ice
- New York & Co. Dressed to Thrill: Fool by Numbers
- New York Skates By
New York & Co. is a Motley Fool Hidden Gems recommendation. To see how Tom Gardner and Bill Mann are beating the market, simply sign up today for your free 30-day trial.
Coca-Cola is a Motley Fool Inside Value recommendation.
Fool contributor Rich Smith does not own shares of any company named above.
