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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

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FORM 10-Q

COMMISSION FILE NUMBER: 1-32315

NEW YORK & COMPANY, INC.
(Exact name of registrant as specified in its charter)

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

        Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý

        As of August 29, 2008, the registrant had 59,904,857 shares of common stock outstanding.

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PART I.

FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

New York & Company, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

See accompanying notes.

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New York & Company, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

See accompanying notes.

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New York & Company, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

See accompanying notes.

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New York & Company, Inc.

Notes to Condensed Consolidated Financial Statements

August 2, 2008

(Unaudited)

1. Organization and Basis of Presentation

        New York & Company, Inc. (together with its subsidiaries, collectively the "Company") is a leading specialty retailer of fashion-oriented, moderately-priced women's apparel. The Company designs and sources its proprietary branded New York & Company™ merchandise sold exclusively through its national network of retail stores and E-commerce store at www.nyandcompany.com. The target customers for the Company's merchandise are fashion-conscious, value-sensitive women between the ages of 25 and 45. As of August 2, 2008, the Company operated 596 stores in 44 states.

        The accompanying condensed consolidated financial statements include the accounts for New York & Company, Inc. and Lerner New York Holding, Inc. ("Lerner Holding") and its wholly-owned subsidiaries, which include Lerner New York, Inc. (and its wholly-owned subsidiaries, including the discontinued business at Jasmine Company, Inc.), Lernco, Inc. and Nevada Receivable Factoring, Inc. On a stand-alone basis, without the consolidation of Lerner Holding and its subsidiaries, New York & Company, Inc. has no significant independent assets or operations. All significant intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, the accompanying consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary to present fairly the financial condition, results of operations and cash flows for the interim periods. Certain amounts in the prior period have been reclassified to conform to the current period presentation.

        The condensed consolidated financial statements as of August 2, 2008 and August 4, 2007 and for the thirteen weeks ("three months") and twenty-six weeks ("six months") ended August 2, 2008 and August 4, 2007 are unaudited and are presented pursuant to the rules and regulations of the United States Securities and Exchange Commission ("SEC"). Accordingly, these unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the 52-week fiscal year ended February 2, 2008 ("fiscal year 2007"), which were filed with the Company's Annual Report on Form 10-K with the SEC on April 8, 2008. The 52-week fiscal year ending January 31, 2009 is referred to herein as "fiscal year 2008." The Company's fiscal year is a 52 or 53 week year that ends on the Saturday closest to January 31.

        Due to seasonal variations in the retail industry, the results of operations for any interim period are not necessarily indicative of the results expected for the full fiscal year.

2. Discontinued Operations

        On October 18, 2007, the Company announced its decision to close all stores operated by the Company's subsidiary, Jasmine Company, Inc. ("JasmineSola"), by the end of the fourth quarter of fiscal year 2007. JasmineSola was a women's retailer of upscale and contemporary apparel, footwear and accessories sold through its chain of JasmineSola branded stores. The Company decided to exit the JasmineSola business after a thorough assessment and analysis. This decision enabled the Company to focus financial and management resources on its New York & Company brand. As of February 2, 2008, the Company, as planned, completed the closure of all of the Company's JasmineSola stores and substantially completed all other exit procedures. As a result, the Company's financial statements reflect JasmineSola as discontinued operations for all periods presented in accordance with Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144").

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New York & Company, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

August 2, 2008

(Unaudited)

2. Discontinued Operations (Continued)

        In accordance with SFAS No. 144 and SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"), the Company recorded a $35.2 million non-cash charge in October 2007 related to the impairment of JasmineSola assets, including $17.2 million of trademarks, $11.1 million of goodwill, and $6.9 million of property and equipment. In accordance with SFAS No. 146, "Accounting for Costs Associated With Exit or Disposal Activities," the Company recorded charges during the third and fourth quarters of fiscal year 2007 of $5.8 million for lease termination costs and $1.3 million for severance costs. As of February 2, 2008, approximately $3.4 million of lease termination accruals and $0.8 million of severance accruals are included in current liabilities of discontinued operations on the consolidated balance sheet. As of August 2, 2008, approximately $0.2 million of exit related accruals are included in current liabilities of discontinued operations on the consolidated balance sheet.

        The operating results of JasmineSola, which are being presented as discontinued operations, are as follows:

3. Earnings Per Share

        Basic earnings per share are computed by dividing net income by the weighted average number of shares of common stock outstanding for the period. Except when the effect would be anti-dilutive at the continuing operations level, diluted earnings per share are calculated based on the weighted average number of outstanding shares of common stock plus the dilutive effect, using the treasury stock

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New York & Company, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

August 2, 2008

(Unaudited)

3. Earnings Per Share (Continued)

method, of stock options as if they were exercised and unvested restricted stock as if it were vested. A reconciliation between basic and diluted earnings per share is as follows:

        The calculation of diluted earnings per share for the three and six months ended August 2, 2008 excludes options to purchase 1,038,510 and 1,422,798 shares, respectively, due to their anti-dilutive effect. The calculation of diluted earnings per share for the three and six months ended August 4, 2007 excludes options to purchase 965,426 and 979,506 shares, respectively, due to their anti-dilutive effect.

4. Share-Based Compensation

        In December 2004, the Financial Accounting Standards Board ("FASB") published SFAS No. 123 (Revised 2004), "Share-Based Payment" ("SFAS No. 123-R"). SFAS No. 123-R retains certain of the requirements of the original SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123") and requires that the cost resulting from all share-based payment transactions be treated as compensation and recognized in the consolidated financial statements. The Company adopted SFAS

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New York & Company, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

August 2, 2008

(Unaudited)

4. Share-Based Compensation (Continued)

No. 123-R in December 2004, utilizing the modified prospective method. Prior to the Company's adoption of SFAS No. 123-R, the Company followed SFAS No. 123 and treated all forms of share-based payments as compensation recognized in the consolidated statement of operations. Therefore, the adoption of SFAS No. 123-R did not have a material impact on the Company's consolidated financial statements.

        The Company recorded share-based compensation expense in the amount of $0.4 million and $0.5 million for the three months ended August 2, 2008 and August 4, 2007, respectively, and $0.7 million and $0.9 million for the six months ended August 2, 2008 and August 4, 2007, respectively.

        During the six months ended August 2, 2008, the Company issued 30,000 shares of restricted stock and 431,648 shares of common stock were issued upon exercise of stock options.

5. Pension Plan

        The Company sponsors a single employer defined benefit pension plan (the "plan") covering substantially all union employees. Employees covered by collective bargaining agreements are primarily non-management store associates, representing approximately 10% of the Company's total employees. The Company's collective bargaining agreement with the Local 1102 unit of the Retail, Wholesale and Department Store Union (RWDSU) AFL-CIO is set to expire on November 30, 2008. The Company anticipates that the collective bargaining agreement with Local 1102 will be extended.

        The plan provides retirement benefits for union employees, consisting of non-management store associates, who have attained the age of 21 and completed 1,000 or more hours of service in the twelve month period following the date of employment. The plan provides benefits based on length of service. The Company's funding policy for the pension plan is to contribute annually the amount necessary to provide for benefits based on accrued service. The Company does not anticipate the need for a material contribution to the plan for the remainder of the current fiscal year. Net periodic benefit cost includes the following components:

6. Income Taxes

        The effective tax rate for both the three and six months ended August 2, 2008 and August 4, 2007 was 40.2%.

        The Company files U.S. federal income tax returns and income tax returns in various state and local jurisdictions. The Company is subject to U.S. federal income tax examinations for the 2006 tax

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New York & Company, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

August 2, 2008

(Unaudited)

6. Income Taxes (Continued)

year and each year thereafter and state and local income tax examinations for the 2003 tax year and each year thereafter.

        At February 2, 2008, the Company reported a total liability of $4.3 million for unrecognized tax benefits, including interest and penalties, all of which would impact the Company's effective tax rate if reversed. There were no material changes to the liability for unrecognized tax benefits during the six months ended August 2, 2008. The Company does not anticipate any significant increases or decreases to the balance of unrecognized tax benefits during the next twelve months.

        The Company accrues interest and penalties related to unrecognized tax benefits in income tax expense.

7. Long-Term Debt and Credit Facilities

        The Company's credit facilities currently consist of a term loan, of which $22.5 million was outstanding at August 2, 2008, and a $90.0 million revolving credit facility (which includes a sub-facility available for issuance of letters of credit of up to $75.0 million), both having a maturity date of March 17, 2012.

        As of August 2, 2008, the Company had availability under its revolving credit facility of $70.6 million, net of letters of credit outstanding of $7.3 million, as compared to availability of $66.1 million, net of letters of credit outstanding of $6.9 million, as of August 4, 2007.

        The revolving loans under the credit facilities bear interest, at the Company's option, either at a floating rate equal to the Eurodollar rate plus a margin of between 1.00% and 1.25% per year, depending upon the Company's financial performance, or the Prime rate. The Company pays the lenders under the revolving credit facility a monthly fee on outstanding commercial letters of credit at a rate of 0.625% per year and on standby letters of credit at a rate of between 1.00% and 1.25% per year, depending upon the Company's financial performance, plus a monthly fee on a proportion of the unused commitments under that facility at a rate of 0.20% per year. The term loan bears interest at a floating rate equal to the Eurodollar rate plus 2.50% per year. If any default were to exist under the revolving credit facility and for so long as such default were to continue, at the option of the agent or lenders, the monthly fee on outstanding standby letters of credit may increase to 3.25% per year, interest on the revolving loans may increase to 3.25% per year above the Eurodollar rate for Eurodollar rate loans and 2.00% per year above the Prime rate for all Prime rate loans, and interest on the term loan may increase to the Eurodollar rate plus 4.50% per year.

        The Company's credit facilities contain certain covenants, including restrictions on the Company's ability to pay dividends on its common stock, incur additional indebtedness and to prepay, redeem, defease or purchase other debt. Subject to such restrictions, the Company may incur more debt for working capital, capital expenditures, stock repurchases, acquisitions and for other purposes. The terms of the Company's credit facilities also subject it to certain maintenance covenants until the Company's existing term loan is paid in full, which require the Company to maintain a fixed charge coverage ratio of not less than 1.00 to 1.00 and a leverage ratio of not greater than 2.75 to 1.00. Should the Company fully repay its existing term loan, the Company will no longer be subject to the maximum leverage ratio and will only be subject to the minimum fixed charge coverage ratio in the event that the Company's

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New York & Company, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

August 2, 2008

(Unaudited)

7. Long-Term Debt and Credit Facilities (Continued)

borrowing availability under its revolving credit facility falls below $10.0 million. These ratios are not necessarily comparable to other similarly titled ratios of other companies due to inconsistencies in the method of calculation. The Company is currently in compliance with the financial covenants referred to above.

        The lenders have been granted a pledge of the common stock of Lerner Holding and certain of its subsidiaries, and a first priority security interest in substantially all other tangible and intangible assets of New York & Company, Inc. and its subsidiaries, as collateral for the Company's obligations under the credit facilities. In addition, New York & Company, Inc. and certain of its subsidiaries have fully and unconditionally guaranteed the credit facilities, and such guarantees are joint and several.

8. New Accounting Pronouncements

        In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" ("SFAS No. 157"). SFAS No. 157 establishes a common definition for fair value to be applied to US GAAP guidance requiring the use of fair value, establishes a framework for measuring fair value, and expands the disclosure about such fair value measurements. The application of SFAS No. 157 as it relates to financial assets and financial liabilities is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. On February 12, 2008, the FASB issued FSP FAS 157-2, "Effective Date of FASB Statement No. 157," which delays the effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on at least an annual basis, to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The Company's adoption of SFAS No. 157 on February 3, 2008 for all financial assets and liabilities and any other assets and liabilities that are recognized or disclosed at fair value on a recurring basis did not impact the Company's consolidated financial statements. The provisions of SFAS No. 157 are to be applied prospectively as of the beginning of the fiscal year in which it is applied, with any transition adjustment recognized as a cumulative-effect adjustment to the opening balance of retained earnings. The Company is currently evaluating the impact that the adoption of SFAS No. 157 for nonfinancial assets and liabilities measured at fair value on a non-recurring basis may have on its financial position and results of operations.

        In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB statements No. 87, 88, 106, and 132(R)" ("SFAS No. 158"). SFAS No. 158 requires recognition of the overfunded or underfunded status of defined benefit postretirement plans as an asset or liability in the statement of financial position and requires companies to recognize changes in that funded status in comprehensive income (loss) in the year in which the changes occur. SFAS No. 158 also requires measurement of the funded status of a plan as of the date of the statement of financial position. SFAS No. 158 is effective for recognition of the funded status of benefit plans for fiscal years ending after December 15, 2006 and is effective for the measurement date provisions for fiscal years ending after December 15, 2008. The adoption of the recognition provisions of this Statement at February 3, 2007 did not have an impact on the Company's financial position and results of operations. The Company does not anticipate that the adoption of the measurement date provisions of this Statement will have a material impact on its financial position and results of operations.

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New York & Company, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

August 2, 2008

(Unaudited)

8. New Accounting Pronouncements (Continued)

        In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles" ("SFAS No. 162"). SFAS No. 162 is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with US GAAP for non-governmental entities. SFAS No. 162 is effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board amendments to AU Section 411, the meaning of "Present Fairly in Conformity with GAAP." Any effect of applying the provisions of SFAS No. 162 is to be reported as a change in accounting principle in accordance with FASB Statement No. 154, "Accounting Changes and Error Corrections." The Company is currently evaluating the impact that the adoption of this Statement, once effective, will have on its financial position and results of operations.

9. Fair Value Measurements

        As described in footnote 8, "New Accounting Pronouncements," on February 3, 2008 the Company adopted SFAS No. 157 for financial assets and liabilities and any other assets and liabilities that are recognized or disclosed at fair value on a recurring basis. SFAS No. 157 establishes a common definition for fair value to be applied to US GAAP guidance requiring the use of fair value, establishes a framework for measuring fair value, and expands the disclosure about such fair value measurements. SFAS No. 157 establishes a three-level fair value hierarchy that requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs used to measure fair value are as follows:

        As of August 2, 2008, the carrying amount of the Company's long-term debt approximates its fair value due to the variable interest rate it carries, and as such it is classified within level 2 of the fair value hierarchy.

10. Legal Matters

        On April 29, 2008, a class action claim was filed in the Superior Court of the State of California for the County of Contra Costa captioned Jannika Schakow v. Lerner New York, Inc. and New York & Company, Inc. The class action seeks relief for, among other things, meal and rest periods allegedly not provided or permitted to certain eligible employees in California. The Company has denied liability and is defending the matter.

        On March 25, 2008, a class action claim was filed in the Superior Court of the State of California for the County of San Diego, the caption of which has been changed to Leslie Johnson v. Lerner New York,  Inc. The class action seeks relief for, among other things, collection of customers' personal information in a manner that is allegedly in violation of California law. The Company has denied liability and is defending the matter.

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ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND RISK FACTORS

(Cautionary Statements Under the Private Securities Litigation Reform Act of 1995)

        This Quarterly Report on Form 10-Q includes forward-looking statements. Certain matters discussed in "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" and other sections of this Quarterly Report on Form 10-Q are forward-looking statements intended to qualify for safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. Some of these statements can be identified by terms and phrases such as "anticipate," "believe," "intend," "estimate," "expect," "continue," "could," "may," "plan," "project," "predict" and similar expressions and include references to assumptions that the Company believes are reasonable and relate to its future prospects, developments and business strategies. Factors that could cause the Company's actual results to differ materially from those expressed or implied in such forward-looking statements, include, but are not limited to those discussed under the heading "Item 3. Quantitative and Qualitative Disclosures About Market Risk" in this Quarterly Report on Form 10-Q and:

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the Company's ability to open and operate stores successfully and the potential lack of availability of suitable store locations on acceptable terms;



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seasonal fluctuations in the Company's business;



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the Company's ability to anticipate and respond to fashion trends, develop new merchandise and launch new product lines successfully;



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general economic conditions, consumer confidence and spending patterns;



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the Company's dependence on mall traffic for its sales;



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the Company's dependence on the success of its brand;



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competition in the Company's market, including promotional and pricing competition;



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the Company's reliance on the effective use of customer information;



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the Company's ability to service any debt it incurs from time to time as well as its ability to maintain the requirements that the agreements related to such debt impose upon the Company;



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the susceptibility of the Company's business to extreme and/or unseasonable weather conditions;



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the Company's ability to retain, recruit and train key personnel;



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the Company's reliance on third parties to manage some aspects of its business;



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changes in the cost of raw materials, distribution services or labor, including federal and state minimum wage rates;



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the potential impact of national and international security concerns on the retail environment, including any possible military action, terrorist attacks or other hostilities;



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the Company's reliance on foreign sources of production, including the disruption of imports by labor disputes, political instability, legal and regulatory matters, duties, taxes, other charges and quotas on imports, local business practices, potential delays in shipping and related pricing impacts and political issues and fluctuation in currency and exchange rates;



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the potential impact of natural disasters and health concerns relating to outbreaks of widespread diseases, particularly on manufacturing operations of the Company's vendors;



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the ability of the Company's manufacturers to manufacture and deliver products in a timely manner while meeting its quality standards;

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the Company's ability to successfully integrate new or acquired businesses into its existing business;



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the Company's reliance on manufacturers to maintain ethical business practices;



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the Company's ability to protect its trademarks and other intellectual property rights;



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the Company's ability to maintain, and its reliance on, its information technology infrastructure;



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the effects of government regulation;



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the control of the Company by its sponsors and any potential change of ownership of those sponsors; and



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risks and uncertainties as described in the Company's documents filed with the SEC, including its Annual Report on Form 10-K, as filed on April 8, 2008.

        The Company undertakes no obligation to revise the forward-looking statements included in this Quarterly Report on Form 10-Q to reflect any future events or circumstances. The Company's actual results, performance or achievements could differ materially from the results expressed or implied by these forward-looking statements.

Overview

        The Company is a leading specialty retailer of fashion-oriented, moderately-priced women's apparel. The Company designs and sources its proprietary branded New York & Company merchandise sold exclusively through its national network of retail stores and E-commerce store at www.nyandcompany.com. The target customers for the Company's merchandise are fashion-conscious, value-sensitive women between the ages of 25 and 45. As of August 2, 2008, the Company operated 596 stores in 44 states.

        As of February 2, 2008, the Company, as planned, completed the closure of the Company's 23 JasmineSola stores and substantially completed all other exit procedures. As a result, the Company's financial statements reflect JasmineSola as discontinued operations for all periods presented. Unless otherwise noted, all financial and store operating data presented in this Quarterly Report on Form 10-Q relate to the New York & Company business.

        Net sales for the three months ended August 2, 2008 increased 3.8% to $295.7 million, as compared to $285.0 million for the three months ended August 4, 2007. Net sales for the six months ended August 2, 2008 increased 1.2% to $565.7 million, as compared to $559.2 million for the six months ended August 4, 2007. Comparable store sales decreased 2.2% for the three months ended August 2, 2008, as compared to a comparable store sales increase of 4.9% for the three months ended August 4, 2007. Comparable store sales decreased 4.3% for the six months ended August 2, 2008 as compared to a comparable store sales increase of 2.0% for the six months ended August 4, 2007. Income from continuing operations for the three months ended August 2, 2008 increased to $8.6 million, or $0.14 per diluted share, as compared to $5.0 million, or $0.08 per diluted share, for the three months ended August 4, 2007. Income from continuing operations for the six months ended August 2, 2008 increased to $15.3 million, or $0.25 per diluted share, as compared to $10.2 million, or $0.17 per diluted share, for the six months ended August 4, 2007. For a discussion of the more significant factors impacting these results, see "Results of Operations" below.

        Capital spending for the six months ended August 2, 2008 was $30.7 million, as compared to $35.3 million for the six months ended August 4, 2007. The $30.7 million of capital spending represents $19.5 million related to the construction of new stores and the remodeling of existing stores and $11.1 million related to non-store capital projects, which principally represent information technology enhancements including, among other projects, a new POS system being implemented across the chain and the upgrade of the Company's existing merchandise planning system. The Company expects to complete the implementation/upgrade of these systems during fiscal year 2008 and 2009. During the six months ended

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August 2, 2008, the Company opened 20 new stores, closed two stores and completed six remodels, ending the period operating 596 stores, as compared to 557 stores as of August 4, 2007. During the six months ended August 4, 2007, the Company opened 25 new stores, closed four stores and remodeled 13 stores. Total selling square footage as of August 2, 2008 was 3.380 million, as compared to 3.289 million as of August 4, 2007.

        The Company views the retail apparel market as having two principal selling seasons: spring (first and second quarters) and fall (third and fourth quarters). The Company's business experiences seasonal fluctuations in net sales and operating income, with a significant portion of its operating income typically realized during the fourth quarter. Seasonal fluctuations also affect inventory levels. The Company must carry a significant amount of inventory, especially before the holiday season selling period.

        The Company's business is impacted by economic conditions which affect the level of consumer spending on the merchandise the Company offers. These economic factors include interest rates, economic growth, wage rates, unemployment levels, energy prices, consumer confidence and consumer spending, among others. Consumer preferences and economic conditions may change from time to time in the markets in which the Company operates and may negatively impact the Company's net sales and profitability. As economic conditions change, there can be no assurance that future trends and fluctuations in economic factors will not have a material adverse effect on the Company's financial condition and results of operations. The Company's strategy is to focus on its customers, current fashion trends, merchandise testing, value pricing and responsive inventory management to enable it to react quickly to changes as they occur.

General

         Net Sales.    Net sales consist of sales from comparable and non-comparable stores and the Company's E-commerce store. A store is included in the comparable store sales calculation after it has completed 13 full fiscal months of operation from the store's original opening date or once it has been reopened after remodeling. Beginning in February 2008, sales from the Company's E-commerce store are included in comparable store sales. Non-comparable store sales include stores which have not completed 13 full fiscal months of operations, sales from closed stores, and sales from stores closed or in temporary locations during periods of remodeling. In addition, in a year with 53 weeks, sales in the last week of the year are not included in determining comparable store sales. Net sales from the sale of merchandise at the Company's stores are recognized when the customer takes possession of the merchandise and the purchases are paid for, primarily with either cash or credit card. Net sales from the sale of merchandise at the Company's E-commerce store are recognized when the merchandise is shipped to the customer. A reserve is provided for projected merchandise returns based on prior experience.

        The Company issues gift cards which do not contain provisions for expiration or inactivity fees. The portion of the dollar value of gift cards that ultimately is not used by customers to make purchases is known as breakage. The Company estimates gift card breakage and records such amount as revenue as gift cards are redeemed. The Company's estimate of gift card breakage is based on analysis of historical redemption patterns as well as the remaining balance of gift cards for which the Company believes the likelihood of redemption to be remote.

         Cost of Goods Sold, Buying and Occupancy Costs.    Cost of goods sold, buying and occupancy costs is comprised of direct inventory costs for merchandise sold, distribution, payroll and related costs for design, sourcing, production, merchandising, planning and allocation personnel, and store occupancy and related costs.

         Gross Profit.    Gross profit represents net sales less cost of goods sold, buying and occupancy costs.

         Selling, General and Administrative Expenses.    Selling, general and administrative expenses include selling, store management and corporate expenses, including payroll and employee benefits,

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employment taxes, management information systems, marketing, insurance, legal, store pre-opening and other corporate level expenses. Store pre-opening expenses include store level payroll, grand opening event marketing, travel, supplies and other store opening expenses.

Results of Operations

        The following tables summarize the Company's results of operations as a percentage of net sales and selected store operating data for the three and six months ended August 2, 2008 and August 4, 2007:

 

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(1)

Net sales per average selling square foot is defined as net sales divided by the average of beginning and end of period selling square feet.

(2)

Net sales per average store is defined as net sales divided by the average of beginning and end of period number of stores.

(3)

Average selling square footage per store is defined as end of period selling square feet divided by end of period number of stores.

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Three Months Ended August 2, 2008 Compared to Three Months Ended August 4, 2007

         Net Sales.    Net sales for the three months ended August 2, 2008 increased 3.8% to $295.7 million, as compared to $285.0 million for the three months ended August 4, 2007. The increase in net sales is primarily due to an increase in non-comparable store sales, driven by net sales from new store openings not yet included in comparable store sales. This increase was partially offset by a 2.2% decrease in comparable store sales for the three months ended August 2, 2008, as compared to a 4.9% increase for the three months ended August 4, 2007. In the comparable store base, average dollar sales per transaction decreased by 2.0%, and the number of transactions per average store decreased by 0.2%, as compared to the same period last year.

         Gross Profit.    Gross profit increased $9.7 million to $88.4 million, or 29.9% of net sales, for the three months ended August 2, 2008, as compared to $78.7 million, or 27.6% of net sales, for the three months ended August 4, 2007. The 230 basis point increase in gross profit as a percentage of net sales during the three months ended August 2, 2008 is the result of a 260 basis point improvement in merchandise margin resulting from a decrease in markdowns; reflecting the success of the Company's strategy to improve margin through disciplined inventory control and targeted, well-planned promotions. This improvement was partially offset by a 30 basis point increase in buying and occupancy costs as a percentage of net sales. The increase in buying and occupancy costs is primarily due to the impact of negative comparable store sales combined with an increase in real estate costs related to new and remodeled stores.

         Selling, General and Administrative Expenses.    Selling, general and administrative expenses increased by $3.9 million to $73.9 million, or 25.0% of net sales, for the three months ended August 2, 2008, as compared to $70.1 million, or 24.6% of net sales, for the three months ended August 4, 2007. This increase in selling, general and administrative expenses as a percentage of net sales is primarily a result of the decrease in comparable store sales, partially offset by the impact of the Company's ongoing cost savings initiatives. On an average store basis, selling, general and administrative expenses declined by 1.6% during the three months ended August 2, 2008, as compared to the three months ended August 4, 2007, reflecting improved cost controls.

         Operating Income.    For the reasons discussed above, operating income increased $5.8 million to $14.5 million, or 4.9% of net sales, for the three months ended August 2, 2008, as compared to $8.6 million, or 3.0% of net sales, for the three months ended August 4, 2007.

         Interest Expense, Net.    Net interest expense decreased to $0.1 million for the three months ended August 2, 2008, as compared to $0.2 million for the three months ended August 4, 2007. The decrease in net interest expense for the three months ended August 2, 2008, as compared to the three months ended August 4, 2007, is primarily related to a decrease in borrowings and fluctuations in interest rates.

         Provision for Income Taxes.    The effective tax rate for the three months ended August 2, 2008 and August 4, 2007 was 40.2%.

         Income from continuing operations.    For the reasons discussed above, income from continuing operations increased $3.6 million to $8.6 million, or 2.9% of net sales, for the three months ended August 2, 2008, as compared to $5.0 million, or 1.8% of net sales, for the three months ended August 4, 2007.

         Income (loss) from discontinued operations, net of taxes.    Income (loss) from discontinued operations, net of taxes represents the Company's discontinued JasmineSola business.

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Six Months Ended August 2, 2008 Compared to Six Months Ended August 4, 2007

         Net Sales.    Net sales for the six months ended August 2, 2008 increased 1.2% to $565.7 million, as compared to $559.2 million for the six months ended August 4, 2007. The increase in net sales is primarily due to an increase in non-comparable store sales, driven by net sales from new store openings not yet included in comparable store sales. This increase was partially offset by a 4.3% decrease in comparable store sales for the six months ended August 2, 2008, as compared to a 2.0% increase for the six months ended August 4, 2007. In the comparable store base, average dollar sales per transaction increased by 2.0%, while the number of transactions per average store decreased by 6.2%, as compared to the same period last year.

         Gross Profit.    Gross profit increased $14.2 million to $172.3 million, or 30.5% of net sales, for the six months ended August 2, 2008, as compared to $158.1 million, or 28.3% of net sales, for the six months ended August 4, 2007. The 220 basis point increase in gross profit as a percentage of net sales during the six months ended August 2, 2008 is the result of a 340 basis point improvement in merchandise margin resulting primarily from a decrease in markdowns; reflecting the success of the Company's strategy to improve margin through disciplined inventory control and targeted, well-planned promotions. This improvement was partially offset by a 120 basis point increase in buying and occupancy costs as a percentage of net sales. The increase in buying and occupancy costs is primarily due to the impact of negative comparable store sales combined with an increase in real estate costs related to new and remodeled stores.

         Selling, General and Administrative Expenses.    Selling, general and administrative expenses increased by $5.9 million to $146.5 million, or 25.9% of net sales, for the six months ended August 2, 2008, as compared to $140.6 million, or 25.2% of net sales, for the six months ended August 4, 2007. The increase in selling, general and administrative expenses as a percentage of net sales is primarily a result of the decrease in comparable store sales, largely offset by the impact of the Company's ongoing cost savings initiatives. On an average store basis, selling, general and administrative expenses declined by 2.9% during the six months ended August 2, 2008, as compared to the six months ended August 4, 2007.

         Operating Income.    For the reasons discussed above, operating income increased $8.3 million to $25.8 million, or 4.6% of net sales, for the six months ended August 2, 2008, as compared to $17.6 million, or 3.1% of net sales, for the six months ended August 4, 2007.

         Interest Expense, Net.    Net interest expense decreased to $0.2 million for the six months ended August 2, 2008, as compared to $0.5 million for the six months ended August 4, 2007. The decrease in net interest expense for the six months ended August 2, 2008, as compared to the six months ended August 4, 2007, is primarily related to a decrease in borrowings and fluctuations in interest rates.

         Provision for Income Taxes.    The effective tax rate for the six months ended August 2, 2008 and August 4, 2007 was 40.2%.

         Income from continuing operations.    For the reasons discussed above, income from continuing operations increased $5.1 million to $15.3 million, or 2.7% of net sales, for the six months ended August 2, 2008, as compared to $10.2 million, or 1.8% of net sales, for the six months ended August 4, 2007.

         Income (loss) from discontinued operations, net of taxes.    Income (loss) from discontinued operations, net of taxes represents the Company's discontinued JasmineSola business.

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Non-GAAP Financial Measure

        The Company has provided a non-GAAP financial measure to adjust income from continuing operations for the three and six months ended August 2, 2008 and August 4, 2007. This information reflects, on a non-GAAP adjusted basis, the Company's income from continuing operations before interest expense, net; provision for income taxes; and depreciation and amortization ("EBITDA"). The calculation for EBITDA is provided to enhance the user's understanding of the Company's operating results. EBITDA is provided because management believes it is an important measure of financial performance commonly used to determine the value of companies and to define standards for borrowing from institutional lenders. The non-GAAP financial information should be considered in addition to, not as an alternative to, income from continuing operations, as an indicator of the Company's operating performance, and cash flows from operating activities of continuing operations, as a measure of the Company's liquidity, as determined in accordance with accounting principles generally accepted in the United States. The Company may calculate EBITDA differently than other companies.

Reconciliation of Income from Continuing Operations to EBITDA

Liquidity and Capital Resources

        The Company's primary uses of cash are to fund working capital, operating expenses, debt service and capital expenditures related primarily to the construction of new stores, remodeling of existing stores and development of the Company's information technology infrastructure. Historically, the Company has financed these requirements from internally generated cash flow. The Company intends to fund its ongoing capital and working capital requirements, as well as debt service obligations, primarily through cash flows from operations, supplemented by borrowings under its credit facilities, if needed. The Company is in compliance with all debt covenants as of August 2, 2008.

        The following tables contain information regarding the Company's liquidity and capital resources:

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Operating Activities of Continuing Operations

        Net cash provided by operating activities of continuing operations was $51.1 million for the six months ended August 2, 2008, as compared to net cash used in operating activities of continuing operations of $1.4 million for the six months ended August 4, 2007. The increase in net cash provided by operating activities for the six months ended August 2, 2008, as compared to the six months ended August 4, 2007, is primarily related to the increase in income from continuing operations, and changes in accounts receivable, income taxes receivable, inventory, prepaid expenses, accrued expenses, and income taxes payable, partially offset by changes in accounts payable, deferred rent, and other assets and liabilities.

Investing Activities of Continuing Operations

        Net cash used in investing activities of continuing operations was $30.7 million for the six months ended August 2, 2008, as compared to $35.3 million of net cash used in investing activities of continuing operations for the six months ended August 4, 2007. These amounts primarily reflect capital expenditures related to the construction of new stores, the remodeling of existing stores and non-store capital projects, which principally represent information technology enhancements including, among other projects, a new POS system being implemented across the chain and the upgrade of the Company's existing merchandise planning system. The Company expects to complete the implementation/upgrade of these systems during fiscal year 2008 and 2009.

        The Company opened 20 new stores and completed six remodels in the six months ended August 2, 2008, as compared to opening 25 new stores and 13 remodels in the six months ended August 4, 2007. The Company currently plans to open 25 to 30 stores, close approximately 12 stores and remodel approximately 13 stores in fiscal year 2008, ending the fiscal year with 591 to 596 stores and approximately 3.3 million selling square feet in operation. The Company's future capital requirements will depend primarily on the number of new stores it opens, the number of existing stores it remodels and the timing of these expenditures.

Financing Activities of Continuing Operations

        Net cash used in financing activities of continuing operations was $1.5 million for the six months ended August 2, 2008, as compared to net cash provided by financing activities of continuing operations of $0.3 million for the six months ended August 4, 2007. Net cash used in financing activities of continuing operations for the six months ended August 2, 2008 consists of quarterly payments against the Company's outstanding term loan totaling $3.0 million partially offset by $1.5 million of proceeds from the exercise of stock options and the related tax benefit to the Company. Net cash provided by financing activities of continuing operations for the six months ended August 4, 2007 primarily consists

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of quarterly payments against the Company's outstanding term loan totaling $3.0 million offset by $3.4 million of proceeds from the exercise of stock options and the related tax benefit to the Company.

Discontinued Operations Cash Flows

        Net cash used in discontinued operations was $6.1 million for the six months ended August 2, 2008, as compared to net cash used in discontinued operations of $4.0 million for the six months ended August 4, 2007. Net cash used in discontinued operations for the six months ended August 2, 2008 consisted primarily of lease termination payments and the payment of other exit related liabilities. Net cash used in discontinued operations for the six months ended August 4, 2007 consisted primarily of cash flows from the operations of the discontinued JasmineSola business.

Long-Term Debt and Credit Facilities

        The Company's credit facilities currently consist of a term loan, of which $22.5 million was outstanding at August 2, 2008, and a $90.0 million revolving credit facility (which includes a sub-facility available for issuance of letters of credit of up to $75.0 million), both having a maturity date of March 17, 2012.

        As of August 2, 2008, the Company had availability under its revolving credit facility of $70.6 million, net of letters of credit outstanding of $7.3 million, as compared to availability of $66.1 million, net of letters of credit outstanding of $6.9 million, as of August 4, 2007.

        The revolving loans under the credit facilities bear interest, at the Company's option, either at a floating rate equal to the Eurodollar rate plus a margin of between 1.00% and 1.25% per year, depending upon the Company's financial performance, or the Prime rate. The Company pays the lenders under the revolving credit facility a monthly fee on outstanding commercial letters of credit at a rate of 0.625% per year and on standby letters of credit at a rate of between 1.00% and 1.25% per year, depending upon the Company's financial performance, plus a monthly fee on a proportion of the unused commitments under that facility at a rate of 0.20% per year. The term loan bears interest at a floating rate equal to the Eurodollar rate plus 2.50% per year. If any default were to exist under the revolving credit facility and for so long as such default were to continue, at the option of the agent or lenders, the monthly fee on outstanding standby letters of credit may increase to 3.25% per year, interest on the revolving loans may increase to 3.25% per year above the Eurodollar rate for Eurodollar rate loans and 2.00% per year above the Prime rate for all Prime rate loans, and interest on the term loan may increase to the Eurodollar rate plus 4.50% per year.

        The Company's credit facilities contain certain covenants, including restrictions on the Company's ability to pay dividends on its common stock, incur additional indebtedness and to prepay, redeem, defease or purchase other debt. Subject to such restrictions, the Company may incur more debt for working capital, capital expenditures, stock repurchases, acquisitions and for other purposes. The terms of the Company's credit facilities also subject it to certain maintenance covenants until the Company's existing term loan is paid in full, which require the Company to maintain a fixed charge coverage ratio of not less than 1.00 to 1.00 and a leverage ratio of not greater than 2.75 to 1.00. Should the Company fully repay its existing term loan, the Company will no longer be subject to the maximum leverage ratio and will only be subject to the minimum fixed charge coverage ratio in the event that the Company's borrowing availability under its revolving credit facility falls below $10.0 million. These ratios are not necessarily comparable to other similarly titled ratios of other companies due to inconsistencies in the method of calculation. The Company is currently in compliance with the financial covenants referred to above.

        The lenders have been granted a pledge of the common stock of Lerner Holding and certain of its subsidiaries, and a first priority security interest in substantially all other tangible and intangible assets

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of New York & Company, Inc. and its subsidiaries, as collateral for the Company's obligations under the credit facilities. In addition, New York & Company, Inc. and certain of its subsidiaries have fully and unconditionally guaranteed the credit facilities, and such guarantees are joint and several.

Critical Accounting Policies

        The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that impact the amounts reported on the Company's consolidated financial statements and related notes. On an ongoing basis, management evaluates its estimates and judgments, including those related to inventories, long-lived assets, goodwill and other intangible assets. Management bases its estimates and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ materially from these judgments. Management believes the following estimates and assumptions are most significant to reporting the Company's results of operations and financial position.

         Inventory Valuation.    Inventories are principally valued at the lower of average cost or market, on a weighted average cost basis, using the retail method. The Company records a charge to cost of goods sold, buying and occupancy costs for all inventory on-hand when a permanent retail price reduction is reflected in its stores. In addition, management makes estimates and judgments regarding, among other things, initial markup, markdowns, future demand and market conditions, all of which significantly impact the ending inventory valuation. If actual future demand or market conditions are different than those projected by management, future period merchandise margin rates may be unfavorably or favorably affected. Other significant estimates related to inventory include shrink and obsolete and excess inventory which are also based on historical results and management's operating projections.

         Impairment of Long-Lived Assets.    The Company evaluates long-lived assets in accordance with Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"). Long-lived assets are evaluated for recoverability in accordance with SFAS No. 144 whenever events or changes in circumstances indicate that an asset may have been impaired. In evaluating an asset for recoverability, the Company estimates the future cash flow expected to result from the use of the asset and eventual disposition. If the sum of the expected future undiscounted cash flow is less than the carrying amount of the asset, an impairment loss, equal to the excess of the carrying amount over the fair value of the asset, is recognized. An impairment loss could have a material adverse impact on the Company's financial condition and results of operations. The Company's evaluation for the six months ended August 2, 2008 resulted in no material asset impairment charge.

         Goodwill and Other Intangible Assets.    SFAS No. 142, "Goodwill and Other Intangible Assets," prohibits the amortization of goodwill and intangible assets with indefinite lives. The Company's intangible assets consist of the New York & Company trademarks and historically the JasmineSola trademarks and goodwill associated with the acquisition of JasmineSola on July 19, 2005, which were initially valued at $14.8 million, $17.2 million and $11.1 million, respectively. The trademarks were initially valued using the "relief from royalty method" and were determined to have indefinite lives by an independent appraiser. Goodwill represents the excess of the purchase price over the fair value of the net assets acquired.

        The Company tests for impairment of goodwill and other intangible assets at least annually in the fourth quarter, or more frequently if events or circumstances indicate that the asset may be impaired, by comparing the fair value with the carrying amount for each individual asset. Goodwill impairment is determined using a two-step process. The first step of the goodwill impairment test is to identify a potential impairment by comparing the fair value of a reporting unit with its carrying amount, including

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the goodwill assigned to the reporting unit. The estimate of fair value of a reporting unit is determined using a discounted cash flow model. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not deemed to be impaired and the second step of the impairment test is not performed. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting unit's goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit's goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. In other words, the fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit.

        The impairment test for other intangible assets not subject to amortization consists of a comparison of the fair value of the intangible asset with its carrying value. The estimates of fair value of intangible assets not subject to amortization, specifically trademarks, are determined using the "relief from royalty method." If the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.

        The calculation of estimated fair values used in the evaluation of goodwill and other intangible assets requires estimates of future cash flows, growth rates, discount rates and other variables, that are based on historical experience, knowledge, and market data. If actual experience differs materially from management's estimates or if changes in strategic direction occur, an impairment charge may be required. Management's estimates may be affected by factors such as those outlined in the section of this report entitled MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS—SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND RISK FACTORS. An impairment loss could have a material adverse impact on the Company's results of operations. In connection with the decision to exit the JasmineSola business, during the third quarter of fiscal year 2007, the Company recorded non-cash impairment charges of $17.2 million and $11.1 million related to the JasmineSola trademarks and goodwill, respectively.

         Income Taxes.    Income taxes are calculated in accordance with SFAS No. 109, "Accounting for Income Taxes," which requires the use of the liability method. Deferred tax assets and liabilities are recognized based on the difference between the financial statement carrying amounts of assets and liabilities and their respective tax bases. Inherent in the measurement of deferred balances are certain judgments and interpretations of enacted tax laws and published guidance with respect to applicability to the Company's operations. Deferred tax assets are believed to be fully realizable as management expects future taxable income will be sufficient to recover the asset values and, as such, no related valuation allowance has been provided for. The Company adopted the provisions of FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109" in the first quarter of fiscal year 2007. This Interpretation prescribes a comprehensive model of how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return. Under this Interpretation, the Company recognizes a tax benefit when a tax position is more-likely-than-not to be sustained upon examination, based solely on its technical merits. The Company measures the recognized tax benefit as the largest amount of tax benefit that has greater than a 50% likelihood of being realized upon the ultimate settlement with a taxing authority. The Company reverses a previously recognized tax benefit if it determines that the tax position no longer meets the more-likely-than-not threshold of being sustained. The Company accrues interest and penalties related to unrecognized tax benefits in income tax expense.

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Adoption of New Accounting Standards

        In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" ("SFAS No. 157"). SFAS No. 157 establishes a common definition for fair value to be applied to US GAAP guidance requiring the use of fair value, establishes a framework for measuring fair value, and expands the disclosure about such fair value measurements. The application of SFAS No. 157 as it relates to financial assets and financial liabilities is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. On February 12, 2008, the FASB issued FSP FAS 157-2, "Effective Date of FASB Statement No. 157," which delays the effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on at least an annual basis, to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The Company's adoption of SFAS No. 157 on February 3, 2008 for all financial assets and liabilities and any other assets and liabilities that are recognized or disclosed at fair value on a recurring basis did not impact the Company's consolidated financial statements. The provisions of SFAS No. 157 are to be applied prospectively as of the beginning of the fiscal year in which it is applied, with any transition adjustment recognized as a cumulative-effect adjustment to the opening balance of retained earnings. The Company is currently evaluating the impact that the adoption of SFAS No. 157 for nonfinancial assets and liabilities measured at fair value on a non-recurring basis may have on its financial position and results of operations.

        In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB statements No. 87, 88, 106, and 132(R)" ("SFAS No. 158"). SFAS No. 158 requires recognition of the overfunded or underfunded status of defined benefit postretirement plans as an asset or liability in the statement of financial position and requires companies to recognize changes in that funded status in comprehensive income (loss) in the year in which the changes occur. SFAS No. 158 also requires measurement of the funded status of a plan as of the date of the statement of financial position. SFAS No. 158 is effective for recognition of the funded status of benefit plans for fiscal years ending after December 15, 2006 and is effective for the measurement date provisions for fiscal years ending after December 15, 2008. The adoption of the recognition provisions of this Statement at February 3, 2007 did not have an impact on the Company's financial position and results of operations. The Company does not anticipate that the adoption of the measurement date provisions of this Statement will have a material impact on its financial position and results of operations.

        In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles" ("SFAS No. 162"). SFAS No. 162 is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with US GAAP for non-governmental entities. SFAS No. 162 is effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board amendments to AU Section 411, the meaning of "Present Fairly in Conformity with GAAP." Any effect of applying the provisions of SFAS No. 162 is to be reported as a change in accounting principle in accordance with FASB Statement No. 154, "Accounting Changes and Error Corrections." The Company is currently evaluating the impact that the adoption of this Statement, once effective, will have on its financial position and results of operations.

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ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Interest Rates.    The Company's market risks relate primarily to changes in interest rates. The Company's credit facilities carry floating interest rates that are tied to the Eurodollar rate and the Prime rate and therefore, the consolidated statements of operations and the consolidated statements of cash flows will be exposed to changes in interest rates. A 1.0% interest rate increase would increase interest expenses by approximately $0.3 million annually. The Company historically has not engaged in interest rate hedging activities.

         Currency Exchange Rates.    The Company historically has not been exposed to currency exchange rate risks with respect to inventory purchases as such expenditures have been, and continue to be, denominated in U.S. Dollars. The Company purchases some of its inventory from suppliers in China, for which the Company pays U.S. Dollars. Since July 2005, China has been slowly increasing the value of the Chinese Yuan, which is now linked to a basket of world-currencies. If the exchange rate of the Chinese Yuan to the U.S. Dollar continues to increase, the Company may experience fluctuations in the cost of inventory purchased from China and the Company would adjust its supply chain accordingly.

ITEM 4.    CONTROLS AND PROCEDURES

        (a)    Evaluation of disclosure controls and procedures.    The Company carried out an evaluation, as of August 2, 2008, under the supervision and with the participation of the Company's management, including the Company's Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended. Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that the Company's disclosure controls and procedures are effective in ensuring that all information required to be filed in this Quarterly Report on Form 10-Q was (i) recorded, processed, summarized and reported within the time period specified in the Securities and Exchange Commission's rules and forms (ii) and that the disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to the Company's management, including its Principal Executive and Principal Financial Officers, as appropriate to allow timely decisions regarding required disclosure.

        (b)    Changes in internal control over financial reporting.    There has been no change in the Company's internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rule 13a-15 or 15d-15 that occurred during the Company's last fiscal quarter (the Company's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

ITEM 4T.    CONTROLS AND PROCEDURES

        (a)   Not Applicable.

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PART II.
OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

        There have been no material changes in the Company's legal proceedings from what was reported in its Annual Report on Form 10-K filed with the SEC on April 8, 2008.

ITEM 1A.    RISK FACTORS

        There have been no material changes in the Company's risk factors from what was reported in its Annual Report on Form 10-K filed with the SEC on April 8, 2008.

ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

        None.

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

        None.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        In accordance with the Company's notice and proxy statement dated May 22, 2008, the Company held its Annual Meeting of Stockholders on June 24, 2008. Holders of 53,883,730 shares of the Company's common stock were present in person or by proxy, representing approximately 90.8% of the Company's 59,370,753 shares outstanding on the record date. The matters set forth below were submitted to a vote of the Company's stockholders:

        (a)   The election of twelve directors of the Company to hold office until the next Annual Meeting of Stockholders or until their respective successors are duly elected and qualified. The following persons were elected as members of the Board of Directors:

        (b)   The proposal to ratify the selection of Ernst & Young LLP to serve as the Company's independent registered public accounting firm for the fiscal year ending January 31, 2009:

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ITEM 5.    OTHER INFORMATION

        None.

ITEM 6.    EXHIBITS

        The following exhibits are filed with this report and made a part hereof.

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SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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