One Guy's Investments

Well, time again to sell a small opening position in a company that may not be as promising as I had thought.

Bought New York & Co. (NWY) on May 12, 2005 at $18.50. Selling today at $15.80, which makes it a nice number jumble but a poor trade.

I bought New York & Co. as a turnaround company that appeared to have OK management, a good marketing plan, and a nice and growing set of stores to sell their own branded clothes to the young(ish) professional woman.

Why did I buy New York & Co. when clearly Chico's is a better company in this niche, and their White House/Black Market is clobbering NWY? Well, to be fair they're not really in the same niche -- but they do both compete against the department stores for the clothes shopping dollars of twenty- and thirty-something women. And Chico's does it a lot, lot better. But the reason I picked up NWY instead of CHS was the potential value -- CHS already had lots of growth priced in, NWY, I thought was potentially undervalued. (Writeup of my Chico's buy is here)

There are a few good articles on NWY and it's recent releases over at the Fool -- linked here and here.

But essentially, the more I learned about Chico's management and performance as I researched my purchase of them a little while ago, the more I lost interest in holding New York.

This is a bit of a loss for me. As in most cases, I opened with just a small position in NWY and planned to hold and buy on dips or as I had the money if they continued to look promising. Sometimes I decide to sell after a brief holding period if it looks like the story isn't playing out the way I hoped or I reconsider my reasons for buying, as I did with Sears Holdings a little while back (writeup of the SHLD sale is here).

The final nail in the coffin for my position was NWY's last information release. The main problem: For a turnaround story, they don't seem to have any sense of urgency in actually turning the operation around and really building a strong company moving forward (and on this front, I'm a little leery that they're still mostly held by an investment bank -- I'd prefer to see someone managing this turnaround who had strong long-term personal ownership stake). They did move to positive earnings this year from a loss last year, but sales have been very weak this summer, much weaker than comparable retailers. When you invest in a company that's trying to turn around by closing or shrinking underperforming stores and opening better ones as well as improving company-wide margins, etc., then problems like they've seen recently make you pause. High inventory levels point to possible margin problems moving forward, and to a company that seems to be making a short term bet on a big fall season to make up for the summer. I'm not confident enough that they'll succeed to wait.

It seems that NWY is coming in quite short of a real sharp-cut turnaround like Eddie Lampert managed at Kmart -- New York was a rebuilding and rebranding play, really, not a cost-cutting turnaround play, and I'm not sure about their ability to rebuild into something that will be able to effectively differentiate itself against the strong competition in the sector. After all, not only is Chico's steaming right along on this path, but big competitors like JC Penney, Sears, Gap, and Ann Taylor are all aiming for this same demographic and have already had some recent success. NWY has to fight not only it's own history as it rebuilds, but a sector that has already substantially retooled and is a bit ahead of them on the curve. Good luck to them, but they'll be doing it without me.

Labels: NWY, sell