UPDATE 2-New York & Co Q1 profit rises on cost cuts; shares up

(Recasts; adds conference call details, analyst comments)

By Sriram Iyer

BANGALORE, May 22 (Reuters) - Women's apparel chain New York & Co Inc (NWY.N: Quote, Profile, Research, Stock Buzz) posted a higher-than-expected first-quarter profit as turnaround efforts bore fruit and raised its full-year earnings outlook, sending its shares up as much as 7 percent.

"The company's focus on reducing inventories, cutting back on promotional levels and holding the line on expenses was a textbook case of how to run a business in a weak economy," analyst Eric Beder of Brean Murray and Carret said in a note to clients.

Lower inventory levels also led to lesser items to liquidate, which led to far fewer discounting. This in turn helped the company maintain prices and margins.

"If the customer doesn't buy it at a higher price, they won't find it in the store," Chief Executive Richard Crystal said in a conference call with analysts.

The brand repositioning, highlighted by the reduced promotions has resulted in significant merchandise margin recovery, Lauren Cooks Levitan, analyst at Cowen & Co, said in another note.

Gross profit margin increased 210 basis points since this period last year.

First-quarter profit from continuing operations was $6.7 million, or 11 cents a share, compared with $5.2 million, or 8 cents a share, a year ago.