The Company is providing the following outlook for the third quarter reflecting its expectations for the balance of the quarter.
Comparable store sales for the third quarter of fiscal year 2012 are expected to be flat to up slightly versus the year-ago period, and the Company expects to have 538 stores in operation at the end of the third quarter as compared to 542 in the prior year.
Gross margin is expected to significantly increase by more than 200 basis points from the prior year’s rate primarily driven by improved product costs resulting in merchandise margin increases. This improvement is expected to be offset by investments in selling, general and administrative expenses, including: (i) an increase in accruals for variable-based compensation; (ii) incremental investments in marketing to drive traffic and increase brand awareness; and (iii) incremental store expense associated with the growth of the Company’s Outlet and eCommerce businesses, and to support the core New York & Company stores. Selling, general and administrative expenses as a percentage of net sales in the fourth quarter of fiscal year 2012 are expected to be comparable to the fourth quarter of fiscal year 2011.
As a result, operating loss in the third quarter of fiscal year 2012 is projected to be in the range of $4 million to $8 million. The year-to-date operating loss at the end of the third quarter is expected to be in the range of $8.5 million to $12.5 million, which is a significant improvement from the operating loss of $24.8 million last year and positions the Company closer to a return to profitability for the full year in the fourth quarter of fiscal year 2012.
As previously announced, the Company continues to provide for adjustments to the deferred tax valuation allowance initially recorded in the second quarter of fiscal year 2010 substantially offsetting any future tax provisions or benefits resulting in an approximately 0% effective tax rate for GAAP purposes.