New York & Company is a specialty retailer of women's fashion apparel and accessories in which Kanen Wealth Management owns an approximate stake of 1.6 million shares.
The letter, written by the firm's president David Kanen, blasted the company for delivering a loss of 66 percent to shareholders dating back to June of 2013 while the retail sector exchange-traded fund, SPDR S&P Retail (ETF) XRT returned 20 percent including dividends over the same time period.
Kanen noted that he invested in the retailer after management announced a cost savings initiative called Project Excellence. Management hoped to achieve net savings of $15 million on annual basis yet management has failed to show any results. Meanwhile, the company expects its fourth-quarter sales to decline by a low-single-digit percentage point and compare store sales are expected to be flat to slightly down on a percentage basis. Data from NPD also suggest a sluggish retail sales environment, which doesn't bode well for retailers, especially specialty ones.
1. Expense Review And Salary Reductions
Specifically, the company's Adjusted EBITDA of $36.3 million in fiscal 2014 fell to $28.3 million over the last 12 months which implies any impact from Project Excellence to its financial results is non-existent — or token gestures.
"Management has paid lip service to improving operating results with nothing to show for it," the letter added. "NWY has been generous to its executives at the top (annual raises) while not being very kind to us people at the bottom (shareholders)."
Kanen continued with the following list of demands.
Kanen wants to see a detailed review of all expenses, including travel and entertainment, rationalization of real estate and leases, unnecessary overtime, cost of internet and telephones, cleaning services, shipping expenses and communications with every store manager to have a goal of saving $1,000 per month per store.
Kanen also added that top executives should voluntarily agree to a cumulative salary reduction of $1.5 million with an offsetting increase in stock based compensation which better aligns management with shareholders.
2. Buyback Program
According to Kanen's estimates, New York & Company will hold around $91 million in gross cash and $78.5 million in net cash at the end of January 31, 2017.
In addition, the company has been operating with a net cash position ranging from $48 million to $61 million over the past five years and excess cash should be returned to investors in the form of a stock buyback.
3. New Board Member
Finally, Kanen is calling on the company to appoint a new board member with a track record of operational excellence and creation of shareholder.
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