New York & Co. Q4 2009 Earnings Call Transcript

123jump.com Staff
26 Mar, 2010
New York City

Sales fell 8% to $298.0 million & net income was $2.5 million or 4 cents a share. Gross profit was $79.9 million or 26.8% of net sales compared to $61.1 million or 18.8% of net sales in the prior year. In total buying & occupancy costs fell by $3.2 million compared to the 4th quarter of last year.

New York & Company Inc. ((NWY))
Q4 2009 Earnings Call Transcript
March 18, 2010 9:00 a.m. ET

Executives

Suzanne Rosenberg - Director, Investor Relations
Richard P. Crystal - Chairman and Chief Executive Officer
Sheamus G. Toal - Executive Vice President and Chief Financial Officer
Leslie Goldmann - Executive Vice President, Merchandising

Analysts

Neely Tamminga - Piper Jaffray
Samantha Panella - Raymond James
Robin Murchison - Suntrust Robinson Humphrey
Eric Beder - Brean Murray, Carret & Co.
Barbara Wyckoff - Jesup & Lamont

Presentation

Operator

Good morning. My name is Kristy, and I will be your conference operator today. At this time, I would like to welcome everyone to the New York & Company Fourth Quarter and Fiscal 2009 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers'' remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key.

Thank you. I will now turn the call over to Suzanne Rosenberg, Director of Investor Relations for New York & Company. Please go ahead.

Suzanne Rosenberg

Thank you. Good morning. Before we begin, I would like to remind you that some of the comments made on today''s call, either as part of our prepared remarks, or in response to your questions, may contain forward-looking statements that are made pursuant to the Safe Harbor provision in the Private Securities Litigation Reform Act of 1995.

Actual results may differ from those projected in such forward-looking statements. Such forward-looking statements are subject to risks and uncertainties as described in the company''s documents filed with the SEC, including the company''s fiscal year 2008 Form 10-K. Unless otherwise noted, the results of operations discussed on this call are for the company''s continuing operations only of the New York & Company brand.

With that, I''d now like to turn the call over to New York & Company''s Chairman and CEO, Richard Crystal.

Richard P. Crystal

Thank you, Suzanne. Good morning, everyone. Thank you for joining us to discuss the company''s fourth quarter and fiscal 2009 results. On the call with me today are Executive Vice President and Chief Financial Officer, Sheamus Toal; and our Chief Merchant, Leslie Goldmann.

For today''s call, I will provide an overview of our fourth quarter and full year results, along with our priorities as we enter 2010. Sheamus will then review our financial performance in more detail and following my closing comments, we''ll turn the call over to the operator to take your questions.

Our fourth quarter results were in line with our expectations and were driven by a significant improvement in merchandise margin and the ongoing benefit of our cost reduction strategies.

In a challenging environment and despite the impact of our conservative inventory position, which held back sales, we were able to accomplish many of our objectives in fiscal 2009.

We ended the year with a strengthened balance sheet that included cash balances up over 60% from the prior year, a 15% reduction in average inventory per store at year-end, reduced debt and no borrowings under our credit facility.

For the fourth quarter of fiscal 2009, we significantly improved our profitability and reversed last year''s loss of $0.20 per diluted share to a profit of $0.06 per diluted share this year.

Our results were driven by a strong 900 basis point improvement in merchandise margins, a level approaching historical highs for our company. While our conservative inventory planning helped achieve this goal, this stance also restricted our ability to generate comparable store sales growth.

In hindsight, given the quality off our holiday assortment, we believe we left sales on the table and our performance would have been stronger had we been positioned with higher levels of inventory in certain categories.

Increased levels of inventory would have also allowed us to better maximize our promotional cadence, where we saw a strong customer response to our aggressive store-wide and category promotions.

That being said, we achieved our goals for fiscal 2009, and we have entered fiscal 2010 in a strengthened position.

In terms of merchandise, we saw a good response to the fashion we delivered, especially novelty tops and cardigan sweaters. Our casual business also continued to strengthen as we elevated our offerings in our streetwear category and built upon the success of our revamped denim collection. Accessories remained a strong category with jewelry continuing to show year-over-year sales increases.

From a macroeconomic perspective, the environment has improved from a year ago, though we are far from being back to the norms of 2006 and 2007. We do expect this economic recovery to continue in 2010, but we also believe that shoppers will continue to seek value. We have planned our promotional calendar accordingly. Our top priority in 2010 is focused on driving topline growth and generating profitability for the year. To this end, we are focused on the flawless execution of our strategic objectives.

First, we will capitalize on our merchandise strengths. In fiscal 2010, we will increase our inventory commitment in key categories where we see opportunity including denim, streetwear, pants and wear-to-work.

As many of you know, we recently revamped our denim collection with new washes and styles. We have also elevated our denim assortment with a premium collection that was just voted universal best jean for every body type by Self Magazine.

We''ve seen great success in our active wear business, which as you may recall we tiered into three components including comfort wear, streetwear and performance wear. The success of this strategy is beginning to materialize and we will continue to invest and expand our offering in these areas.

We believe that wardrobe fatigue, coupled with enhancements we''ve made in our total pants assortment, will drive the pant business for us in 2010. In addition to the introduction of new styles, we will continue to build upon the success of our 7th Avenue pant which remains a top seller for us, achieving sales of nearly 9 million units since its introduction.

We remain focused on maintaining our reputation as a strong wear-to-work destination. In fiscal 2010, we will also upgrade the wear-to-work side of the business by introducing elements of our Red Label collection to our entire chain, beginning in April.

Red Label allows to us broaden our price points and elevate our assortments at the same time. We believe this initiative will create a halo effect for the rest of the wear-to-work assortment and drive increased sales in this category. We will also continue to invest in stretch shirts, a hallmark of our wear-to-work business that our customers always expect us to have in stock.

Our accessory business remains a strong performer for our company, fueled by the jewelry business. Here we will also appropriately invest in inventory while continuing to integrate this important business into the way we visually merchandise our stores.

Our second strategic initiative for fiscal 2010 is focused on our marketing and will include the continued strengthening of our New York Styles, Great Deals brand platform. This year we will reinforce this differentiated message with sharper and more compelling window visuals, along with clearer in-store signage and displays. We''ve also begun testing radio and other forms of advertising to determine their effectiveness at driving traffic to our stores and online.

Third, we will focus on expanding our customer base. To appeal to our existing customers, while attracting new shoppers to our brand, we will employ a more targeted promotional cadence that effectively conveys New York & Company''s strong fashion value proposition and drives customers to our stores.

We continue to strengthen our direct mail and marketing efforts by using predictive modeling campaigns and focusing on e-mail segmentation to be more efficient as we talk to new and existing customers.

To drive our private label credit card business, we continue to expand our partnership programs and we are in the process of revamping our rewards club program to tie it more closely to that business.

Our fourth strategic initiative is focused on growing our E-Commerce business. Through our research, we have learned that cross-channel customers are our most productive. Our online customer is the highest spending shop every and our E-Commerce efforts will focus on making adjustments to our site that capitalize on this opportunity and drive these shoppers to our stores.

In addition, we expect to grow online sales as we expand our online assortment, new product exclusives and current product extensions. A highly productive channel, we continue to expect the E-Commerce business to comprise 8% to 10% of total company sales over the next several years.

Building upon the multi-channel distribution model as many of you know, we opened three New York & Company outlet stores as part of a test in fiscal 2009 that was very well received. This channel caters to a slightly different customer than our traditional business.

We will meet their demands with a merchandise mix that will offer apparel and accessories which can be found at our existing retail stores, but will be at a discount. However, no coupons will be accepted in this channel. Over time, the mix will also include merchandise manufactured exclusively for the outlets.

The outlet channel is highly profitable, given its lower cost structure and offers us significant growth potential as a company. As a result, we plan to open between 20 and 25 outlets over the next 12 months. These stores will be approximately 4 to 6,000 square feet and we do expect they will be profitable in their first full-year of operation. Longer term, we believe the outlets represent a 75 to 90 location opportunity for us.

And now, I’d like to turn the call over to Sheamus, who will review our financial performance.

Sheamus G. Toal

Thank you, Richard. Good morning, everyone. First, I would like to mention that the results being discussed today are for our continuing operations in New York & Company brand.

As previously announced at the end of last fiscal year, we implemented a multi-year restructuring and cost reduction program, which we expect will result in total savings of $175 million over a five-year period. During fiscal year 2009, we recognized over $30 million in savings in connection with this program. Throughout the fiscal year, we continued to monitor the program and evaluate the business.

As a result, during the third and fourth quarters of fiscal year 2009, we recorded pre-tax restructuring charges of $0.5 million and $1.9 million respectively. These charges were comprised of $1.2 million of non-cash asset impairment charges related to underperforming stores and $1.2 million of cash charges related to severance.

During the fourth quarter of fiscal year 2008, the company recorded $26 million of pre-tax restructuring and other charges. These charges negatively impacted diluted earnings per share by $0.02 in the fourth quarter of fiscal year 2009, and by $0.26 per diluted share in the prior year period. These unusual items have been excluded from certain non-GAAP adjusted earnings that we will discuss shortly.

Net sales for the fourth quarter of fiscal year 2009 were $298 million, as compared to $325.1 million for the fourth quarter of last year. The decrease in net sales is primarily due to a decrease in comparable store sales of 7.7% versus a decline of 10.9% last year.

In the comparable store sales base, average dollar sales per transaction increased by 7.1%. While the number of transactions per average store decreased by 13.8%, as compared to the same period last year.

Gross profit for the fourth quarter of fiscal year 2009 was $79.9 million or 26.8% of net sales, as compared to $61.1 million or 18.8% of net sales in the prior year.

Merchandise margins for the fourth quarter improved by 900 basis points, resulting from sourcing efficiencies and a decrease in promotional and inventory clearance activity. This improvement was partially offset by 100-basis point increase in buying and occupancy costs, primarily attributed to the deleveraging resulting from decreases in comparable store sales.

In total, buying and occupancy costs decreased by $3.2 million, as compared to the fourth quarter of last year, reflecting the impact of our restructuring and cost reduction program.

Excluding the previously mentioned pre-tax charges recorded in the fourth quarter of this year and last year, selling, general and administrative expenses decreased to $74.6 million or 25.1% of net sales during the fourth quarter of fiscal year 2009, as compared to $82 million or 25.2% of net sales in the prior year. On an average store basis, selling, general and administrative expenses declined by 9% during the fourth quarter of fiscal year 2009.

Net income from continuing operations improved significantly for the fourth quarter of fiscal year 2009, with income of $2.5 million or $0.04 per diluted share, as compared to a loss of $27.6 million or $0.46 per diluted share in the prior year.

Adjusted net income from continuing operations for the fourth quarter of fiscal year 2009 also improved significantly, with income of $3.7 million or $0.06 per diluted share, which excluded $1.9 million of pre-tax restructuring charges and this compared to the prior year adjusted net loss of $12.1 million or $0.20 per diluted share, which excluded $26 million of pre-tax restructuring and other charges.

Net loss from continuing operations for the full fiscal year totaled $13.5 million or $0.23 per diluted share. This compares to a loss from continuing operations of $20.3 million or $0.34 per diluted share in the prior year.

Adjusted net loss from continuing operations for fiscal 2009 was $12.1 million or $0.20 per diluted share, which again excludes $2.4 million of pre-tax restructuring charges. This compares to the prior year net loss from continuing operations of $3.2 million or $0.05 per diluted share, which excluded $28.6 million of pre-tax restructuring and other charges.

Moving to our year-end balance sheet, inventory at cost was $87.1 million, which on an average store basis is down approximately 15.1%. While we were comfortable with the aging and freshness of our inventory, the overall level of inventory was light as we entered the spring season.

Our balance sheet included $87 million in cash, working capital and working capital of $68 million at January 30, 2010. Capital spending for fiscal year 2009 was $13.3 million, as compared to $44.6 million last year. The reduction in capital spending is in line with our plans to reduce capital expenditures during 2009 in order to conserve cash.

During fiscal 2009, we opened 11 new stores, remodeled three stores and closed 24 stores, ending the year with 576 stores and 3.2 million selling square feet in operation.

For spring 2010, we are providing the following guidance. We currently expect comparable store sales for the first half of fiscal year 2010 to return to positive territory, with comparable store sales expected in the low positive single digit range. We expect gross margins for the first half of fiscal year 2010 to improve versus the prior year''s levels.

Selling, general and administrative expenses for the first half of fiscal 2010 are expected to increase. However, will remain flat on a percentage of sales basis versus the prior year, reflecting the continued impact of our restructuring and cost reduction program, offset by additional spending to support our outlet launch and our growing E-Commerce business.

Results of operations for the first half of fiscal year 2010 are expected to modestly improve versus the prior year, with first quarter losses projected to be similar to last year and a narrowing of the loss in the second quarter versus last year. As previously disclosed, our first half results include the negative impact of the initial store infrastructure costs and pre-opening expenses relating to our newly-launched outlet stores.

As Richard mentioned earlier, our main priority in 2010 is to drive topline sales and achieve profitability. To accomplish this goal, we plan to increase our inventory investment this spring season and end the season with double-digit increases in inventory.

This increase will shift our inventory more in line with historical levels, in contrast to the cumulative 27% decline in inventory levels over the preceding two-year period. We believe this increase will put us in a better position to maximize sales opportunities in the future.

Capital expenditures are expected to be $17 million for the first half of fiscal year 2010, as compared to $6 million in the prior year. We plan to open approximately 25 new stores, remodel approximately eight existing locations and close 10 stores, ending the first half of fiscal year 2010 with 591 stores.

Depreciation expense is estimated at $21 million. The company had no outstanding borrowings under its credit facility and currently does not anticipate the need to use the facility during the first half of 2010.

And now, I''d like to turn the call back to Richard for closing remarks.

Richard P. Crystal

Thank you, Sheamus. In summary, our company is strongly positioned for a significant recovery, fashion-right merchandise, multiple growth opportunities and an optimized cost structure that will allow us to return to peak operating margins over time.

And now, I would like to turn the call over to the operator to begin the question-and-answer portion of the call.

Question-and-Answer Session

Operator

At this time, I would like to remind everyone in order to ask a question, please press star one on your telephone keypad.

Your first question comes from the line of Neely Tamminga with Piper Jaffray.

Neely Tamminga - Piper Jaffray

Great. Good morning. Just wondering, Sheamus, if you could talk a little bit more about your outlook for gross margin. If you''re looking for improvement, could you maybe size up for us where that improvement''s going to be coming? Is it primarily merchandise margin? Is it leverage on occupancy? And then is there opportunity maybe even beyond that for the first half? And I have a follow-up.

Sheamus G. Toal

How you doing, Neely? First, we''re not going to get into discussing anything beyond the first half. So we''re going to limit our comments at this point to the first half of the year. While we do expect the promotional environment to remain challenging in the first half of the year, we do expect some modest improvements in gross margin for the spring season.

When we look at the split of that between the merchandise margins as well as the buying and occupancy costs, we expect merchandise margins to be relatively consistent with the prior year.

From a buying and occupancy standpoint, we will obviously have the inclusion of the occupancy cost relating to our outlet business in the first half of the year, but on a rate basis we expect that to be approximately flat to a year ago. So the net effect of that is a modest improvement in gross margins as we move through the spring season.

Neely Tamminga - Piper Jaffray

Okay. I''m not totally clear on that. So if you''re looking for merchandise margins to be relatively consistent or flat and then occupancy to be relatively flat on a rate basis, what am I missing? Where''s the improvement coming from?

Sheamus G. Toal

The overall improvement in margin, I mean, they''re relatively flat. So the merchandise margin might be up slightly for the spring season. We are experiencing -- expecting increases in comparable store sales so we may gain a little bit of leverage on the buying and occupancy costs, but as I mentioned we are absorbing some of the outlet occupancy costs. So we''re not expecting significant improvement in either at this point.

Neely Tamminga - Piper Jaffray

Okay. And then I know you said you only want to limit comments to the first half and I''m not trying to ask on a guidance sort of front but just conceptually maybe you could chime in on this, from a sourcing perspective we''re all trying to figure out what some of the levers are, just going on in sourcing. We heard about some potential increase in transportation costs in the back half. There''s frequent articles about comp pricing, what have you. Can you give us some general commentary about what you guys are expecting for your business from the sourcing side in the second half?

Richard P. Crystal

We haven’t seen -- we don''t expect to see any increase on the sourcing side. We continue to leverage certain items by taking advantage of off-season opportunities possibly in some key categories to offset some of that, Neely. So we think we''re fine on that aspect and don''t expect to see any deterioration in our merchandise, initial merchandise margins as we move forward.

Neely Tamminga - Piper Jaffray

Thank you. That''s very helpful. Good luck.

Richard P. Crystal

Thanks.

Operator

Your next question comes from the line of Sam Panella with Raymond James.

Samantha Panella - Raymond James

Okay. Good morning. Could you just give us the store openings and closings by quarter? And then also, if you could just explain your outlet program a bit more to us, what additional cost infrastructure-wise you''re incurring and why not just operate the outlet locations as you operate your regular New York & Company stores? Thank you.

Sheamus G. Toal

I''ll take the first one, as far as the openings and closures for the season. We''re currently working on, as we said, the 20 to 25 outlet stores. The timing of some of those might shift a little bit. At this point, we expect the primary, the vast majority of the stores to open during the second quarter, so of the 25, we would probably expect about 20 of those, 19 or 20 of those to open during the second quarter. We might have five or six stores opening during the first quarter of the spring season.

As far as the closures, they will be occurring, again, across both seasons and relatively evenly split. So there might be some fluctuation in those for the season ends, but for the quarter ends, as they cross the quarters, but primarily the outlets will be opening in the second half, the second quarter of the year and toward the end of the second quarter, so we''re not expecting a lot of sales impact on the second quarter results from the outlets.

Richard P. Crystal

Second part of the question, Sam, as far as not operating exactly as other stores, we''ve done tests where we did operate some outlets as regular stores versus operating them a little differently and the results were better when we operated a little differently. More opportunity in terms of margin by being able to make some goods off-season, use some less expensive piece goods to drive higher margins.

And also many of these outlet stores are in locations that are transient locations where there might be less of our traditional customers, so we don''t want to give out coupons and we need to have an opportunity to discount some of that merchandise. So it''s a combination of things. Also, we don''t want to cannibalize our existing stores. We''re out nearby, so we want to have a little differentiation in the inventory.

And finally, there''s an opportunity by using the outlets to clear some of our stores so that we don''t compete with ourselves in the stores. We show that by moving merchandise out of these stores. We have a significant margin opportunity in those existing stores.

So when you take all that into account, it makes a lot more sense to operate the outlets as we described, with X amount of merchandise, probably about a third of the merchandise will be what you can find in our stores, but at a discount with no coupons.

A third of it over time will be manufactured exclusively for those outlets. And the balance will come from transferring in from stores to keep them clean, as well as using some sell-off opportunities versus selling them into the marketplace, we can liquidate the goods in our own stores and that also offers us an upside on profitability.

Samantha Panella - Raymond James

Okay. And then in terms of infrastructure cost to set up this outlet program, are you incurring anything on that end?

Richard P. Crystal

Yeah. We are incurring. We''re not going to be specific about that. We mentioned it does have an impact on our results. We''re going to put an infrastructure in place, as we said, we believe this is a big opportunity for us. We believe it''s over time close to 100 stores, 90 to 100 stores and we believe it deserves its own organization so we don''t take our eye off the ball on the existing chain. So we will be putting infrastructure in. There is opening costs associated with payroll and rent while the stores are being built, but we''re not going to specifically detail how much that''s going to be.

Samantha Panella - Raymond James

Okay. Thanks, guys, and good luck.

Richard P. Crystal

Thank you.

Operator

Your next question comes from the line of Robin Murchison from Suntrust.

Robin Murchison - Suntrust Robinson Humphrey

Hi. Thank you. Good morning.

Richard P. Crystal

Good morning.

Robin Murchison - Suntrust Robinson Humphrey

First of all, continue to think the store merchandise presentation continues to just get better and better, so I want to compliment you guys on that.

Richard P. Crystal

Thank you.

Robin Murchison - Suntrust Robinson Humphrey

I''d like to ask you about and Richard, in your opening remarks, you talked about wear-to-work and you were going to upgrade, this is first objective or initiative for the year, introducing elements of Red Label to the entire chain.

Can you break that out or define that a little bit more? When you say introducing elements of Red Label, I presume that you''re, I know Red Label is not in all of the stores. I presume you''re talking about taking some pieces of it into all stores with the same higher average price point? Is that correct?

Richard P. Crystal

Yes. What we intend on doing, our initial introduction of Red Label was to take it and put it in about 30 to 40 stores and present it as a total collection. And we can''t do that in the entire chain because we may not have the space. So what we wanted to do was elevate and create a halo effect for our entire wear-to-work business because we think by having that merchandise, the customer looks at it, it''s a little more fashionable, it''s better quality, some higher price points, it''s not as promotional, that we can elevate the entire collection and by doing so, hopefully bring in some new customers into our franchise. And while also giving our existing customer base the opportunity to trade up if they so choose.

So in order to do it in the entire chain, we looked at some examples of what some other people do, for example (inaudible) and they put elements of a better label mixture out their collection to gives that halo effect so and we think it works very effectively for them and so we tried a little bit for us and we''re going to by April collection introduce that across the entire chain.

So when you walk in the store you will see on front T stands, on sections of mannequins, you''ll see Red Label. It will be identified with a Red Label in the garment. It will be hopefully significant different to the customer and give her a reason to buy it from its quality point of view, fashion point of view, differentiation of fabrics, et cetera, that the customer will recognize this and hopefully we again create this halo effect across the rest of our wear-to-work business. The price points will be in the range of 20% to 25% differentiation between existing price points. So does that explain what we intend to do?

Robin Murchison - Suntrust Robinson Humphrey

Yeah. And then what kind of grade would you give Red Label right now? I just saw your collection at 58th and I think, it''s 3rd Street. What kind of grade would you give the collection right now?

Leslie Goldmann

I think overall we''re pretty pleased with the Red Label collection. We''re evolving it as we''re learning more and more about what that customer wants and we''ll keep evolving it as we get more information on the trade down customer.

Richard P. Crystal

I''d give it about a B plus if I had to make a grade on it, so in terms of the presentation, the fashion, I think it looks good. I think its fashion-right, incorporates a lot of elements of what''s happening today and I think it creates a good effect for us and…

Robin Murchison - Suntrust Robinson Humphrey

Yeah.

Richard P. Crystal

… or how would you grade it?

Robin Murchison - Suntrust Robinson Humphrey

Well, it was -- there were elements of it that I like and there were elements that probably I wasn''t as wild about. One person doesn''t a collection make. It is probably as Red Label goes, I felt like it was more trendy, a lot more trend and a lot more fashion-forward than I had seen in the Red Label product before. But again, I don''t have the consistent opportunity to evaluate it in the market that I''m in.

Richard P. Crystal

Okay.

Robin Murchison - Suntrust Robinson Humphrey

One other question. What -- in terms of looking at your overall assortment, we need to sort of call out what you see as a problematic areas and how the challenge can be met in those areas, clearly on pants and denim you''re doing a better job but just in terms of how do you think about the rest of the assortment?

Leslie Goldmann

Well, I''m feeling pretty good about the assortment that we have. We just set a new floor set this week which we''re very excited about and it’s positioning into Easter for us, Robin, so I''m very pleased with that.

Overall, we aren''t discussing actual results by months on certain areas or with current results at all, so that''s really all I could say is, we feel confident about our strategic initiatives and have positioned our pants, our wear-to-work, our growth in casual and comfort wear and expect that really to help drive our performance in the season.

Robin Murchison - Suntrust Robinson Humphrey

I think the strapless dresses with the top cardigans look great and it''s certainly sort of I would think would be a traffic driver. It does draw you in the store so congratulations and good luck.

Richard P. Crystal

Thanks, Robin.

Leslie Goldmann

Thank you, Robin. That is actually clearly that was our goal, so I''m glad you''re seeing that. We do feel strongly about the whole dress cardigan business, go-forward into the season as well.

Robin Murchison - Suntrust Robinson Humphrey

Thanks.

Operator

Your next question comes from the line of Eric Beder with Brean Murray.

Eric Beder - Brean Murray, Carret & Co.

Good morning.

Richard P. Crystal

Hello, Eric.

Sheamus G. Toal

Hi, Eric.

Eric Beder - Brean Murray, Carret & Co.

Could you talk a little about what the -- how big are the outlet stores going to be compared to your regular stores?

Richard P. Crystal

About similar in size, we''re looking at 4 to 6,000 square feet. Our average store I think is about 5600, so probably a little bit on the smaller side, but close to what we''re building today as we build new stores the last few years, have been in the 4,000 to 5,000-foot range.

Eric Beder - Brean Murray, Carret & Co.

Okay. And how has the you talked about doing the Red Label before in terms of the entire chain but how has it done in terms of driving, widening your customer base in the, is about 30 or so stores where is right now.

Richard P. Crystal

It''s hard to pinpoint those 30 stores, Eric. I think we''ll have a better feeling as we and one of the reasons we did expand it through the chain, because we think it''s a better opportunity for us. It''s hard to isolate 30 stores to know exactly what the customer profile is. And we''re doing some research now that we''re just getting the results back on. So between that and what we see in -- after the introduction in early April, by the end of spring we''ll have a better handle on that.

We are seeing some positive things in like our streetwear business which we''re getting a lot more regular priced selling so we do think there''s a little bit of differentiation of customer base coming in but we don''t have all the results yet.

Eric Beder - Brean Murray, Carret & Co.

Okay. In terms of denim you guys have done a great job of upgrading that…

Richard P. Crystal

Thanks.

Eric Beder - Brean Murray, Carret & Co.

… the whole look of it. What have been kind of the key denim styles seeing now, what do you think they''re going to be going forward for your customer?

Leslie Goldmann

Well, we were thrilled that we were voted the best jean by Self Magazine. A lot of work went into revamping of our denim respect. Our assortments and our washes and we''re very thankful to get recognized for that and of course go forward, we''re going to continue to push and leverage our position in that area. We feel it''s a tremendous opportunity for us to capture market share in our marketplace, so you will see us go forward with that.

We''ll offer both an assortment of styles. We''ll have skinnies. You''ll see we introduced the whole jagging category. So we plan to be completely on trend with denim as well as offering it in the best fits we can.

Eric Beder - Brean Murray, Carret & Co.

Okay. Well, thank you.

Richard P. Crystal

Thanks, Eric.

Leslie Goldmann

Thank you.

Operator

Your next question comes from the line of Barbara Wyckoff with Jesup & Lamont.

Barbara Wyckoff - Jesup & Lamont

Hi, everyone. How are you?

Richard P. Crystal

Good. How are you?

Barbara Wyckoff - Jesup & Lamont

Good. I want to talk, I guess, this is for Richard and for Leslie also. Can you talk a little bit about the pant business, what''s going on in bottoms? You know, I guess boot versus straight versus skinny, starting to see people testing new silhouettes, looser at the top, narrow at the bottom, the jean legging you said you had, is it important for you? How important do you think crop pants will be in the spring season?

Leslie Goldmann

Sure. Well, we are very bullish on our pants business. It''s a very important part of our business. On the wear-to-work side, Richard mentioned our 7th Avenue pant.

Barbara Wyckoff - Jesup & Lamont

Right.

Leslie Goldmann

It''s just a tremendous driver for us. We are a destination for wear-to-work pants driven mainly by our 7th Avenue but we also offer other fits and styles for go-to-work as well.

In casual, I did mention that we did introduce the jagging which is definitely trend point and important for us, as well as, skinnies. You’ll also see that we brought in our assortment in casual to include the whole boyfriend chino look. So our whole handle on pants is really to offer the best of New York style and great deals but also it fits for everybody. Hopefully you''ll see in our store that we really have represented that.

Barbara Wyckoff - Jesup & Lamont

Is the skinny and straight leg the biggest part of the business at this point, I guess you would include the jagging there?

Leslie Goldmann

Well, it definitely is a significant part of our business but I would not want to underestimate the role of the slim boot as that really works for a lot of people going to work.

Barbara Wyckoff - Jesup & Lamont

Okay. And then the new pant that I''m starting to see around but tested, sort of looser at the top, narrow at the bottom, anything there for you?

Leslie Goldmann

Yeah. You know, we have had that style in our assortment since it was introduced on the runway some time ago. I can''t say that it is a significant portion of what we''re doing. But we will always have that represented in our assortment. We structure our business in a line plan to accommodate for our core business, our core base fits, as well as, the new emerging trend so that is a part of our line, a part of our structure but not significant.

Barbara Wyckoff - Jesup & Lamont

Okay. Thanks a lot.

Leslie Goldmann

Thank you.

Operator

Again, in order to ask a question, please press star one on your telephone keypad. Again that’s star one. We do have a follow-up question from Robin Murchison with Suntrust.

Robin Murchison - Suntrust Robinson Humphrey

Thanks again. Hey, Leslie, just wanted to, you mentioned the boyfriend chino look. And I just wanted to ask you to about chinos or khakis, or military influence in general and also wanted to ask you about the accessory business and when do we -- aren''t we beginning to cycle the pickup in accessories?

Leslie Goldmann

Okay. Let me start with the accessories first and it’s a good question. We have been really driving our jewelry business for quite some time, Robin, but I will tell you we do expect, as I mentioned, to continue here. It is a hallmark of our brand at this stage. We merchandise our jewelry with our apparel to drive ADS and UPTs and we do expect not only our sales but to continue to drive up how we position it in stores as well. So we feel very good about that.

In terms of chinos, khaki and military, you can see in our stores that we are into that business. In addition to the boyfriend chino, we also have a core based chino that we feel very good about that is available in proportion to our customer, which is a safe part of our business in capturing market share in pants. So we''re thrilled with that and you''ll continue to see the military trend which is starting now, progress as we go forward. Does that answer your question?

Robin Murchison - Suntrust Robinson Humphrey

Yes. It does. Thank you very much.

Leslie Goldmann

Sure.

Operator

Your next question comes from the line of Sam Panella with Raymond James.

Samantha Panella - Raymond James

Okay. Thanks, again. If you could talk about maybe your comp metrics in the quarter and perhaps, what you expect to drive the positive comp in the spring, is it better traffic or conversion?

And then just one more, the tax rate in the quarter coming in at 29%, what was the reason for it, for the lower rate and how should we think about that for 2010? Thank you.

Richard P. Crystal

In terms of comps for the quarter, we expect key categories of merchandise to drive it. I think, it’s, we hope all the metrics will improve to a certain degree, soon. We will hope -- we''ve seen some traffic improvement as we go through. Weather''s helping a little bit in the northeast relative to a year ago. We''re seeing some better conversion and we just think our assortment is stronger than it was a year ago. We''re seeing good results in our pant business. We talked about the dress business, jewelry business, some elements of the top business, so and jean business. So we''re seeing some positive momentum.

We did come in light in inventory early on and we continue to have chased merchandise and we believe we''ve invested appropriately in the right categories as we move forward through the spring season. So we expect that to drive comps. The second question, I''m not sure…

Sheamus G. Toal

Yeah. I''ll take the second question. Hi, Sam.

Samantha Panella - Raymond James

Hi.

Sheamus G. Toal

From a tax standpoint, we did have some minor adjustments in our taxes for the fourth quarter, so the rate that you see in the fourth quarter I would not expect going forward. I think what you could probably use in your models going forward is a more traditional tax rate that we''ve experienced in the past. So we do not expect that rate to continue in the future.

Samantha Panella - Raymond James

Okay. Thanks again.

Richard P. Crystal

Thank you.

Operator

I now will turn the call back over to management for closing remarks.

Richard P. Crystal

Thank you. Thanks again for joining us. And we look forward to speaking to you when we report first quarter results in May. Thanks.

Operator

Thank you. This concludes today''s conference call. You may now disconnect.