e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED APRIL 30, 2011
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-34536
rue21, inc.
(Exact name of registrant as specified in its charter)
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DELAWARE
(State or Other Jurisdiction of Incorporation or Organization)
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25-1311645
(I.R.S. Employer Identification No.) |
800 Commonwealth Drive
Warrendale, Pennsylvania 15086
(Address of principal executive office)
(724) 776-9780
(Registrants telephone number, including area code)
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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the Registrant was required to submit and post such files). Yes o
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):
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
The number of shares outstanding of the Registrants common stock was 24,399,356 as of May 23,
2011.
rue21, inc.
Form 10-Q
Quarter Ended April 30, 2011
INDEX
2
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
rue21, inc. and subsidiaries
Consolidated Balance Sheets
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April 30, |
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January 29, |
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May 1, |
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2011 |
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2011 |
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2010 |
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(Unaudited) |
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(Unaudited) |
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(in thousands, except per share data) |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
55,587 |
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$ |
50,111 |
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$ |
27,785 |
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Accounts receivable |
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10,340 |
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6,733 |
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7,288 |
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Merchandise inventory, net |
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105,630 |
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96,051 |
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86,689 |
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Prepaid expenses and other current assets |
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12,463 |
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10,580 |
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7,609 |
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Deferred tax assets |
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6,699 |
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5,024 |
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4,335 |
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Total current assets |
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190,719 |
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168,499 |
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133,706 |
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Property and equipment, net |
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97,977 |
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91,371 |
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76,718 |
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Other assets |
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971 |
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921 |
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925 |
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Total assets |
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$ |
289,667 |
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$ |
260,791 |
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$ |
211,349 |
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Liabilities and stockholders equity |
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Current liabilities: |
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Accounts payable |
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$ |
89,909 |
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$ |
82,075 |
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$ |
74,346 |
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Accrued expenses and other current liabilities |
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16,416 |
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15,616 |
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13,488 |
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Accrued payroll and related taxes |
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9,216 |
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12,053 |
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8,222 |
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Deferred rent and tenant allowances, current portion |
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7,759 |
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7,033 |
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6,088 |
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Accrued income and franchise taxes |
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8,157 |
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1,999 |
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4,279 |
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Total current liabilities |
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131,457 |
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118,776 |
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106,423 |
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Non-current liabilities: |
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Long-term debt |
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Deferred rent, tenant allowances and other long-term liabilities |
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40,705 |
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34,235 |
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27,313 |
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Deferred tax liabilities |
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4,684 |
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5,651 |
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3,677 |
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Total non-current liabilities |
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45,389 |
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39,886 |
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30,990 |
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Commitments and Contingencies |
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Stockholders equity: |
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Common stock par value $0.001 per share; 200,000 shares authorized; 24,394, 24,380 and
24,266 shares issued and outstanding, respectively |
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24 |
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24 |
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24 |
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Additional paid in capital |
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32,626 |
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31,552 |
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27,782 |
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Retained earnings |
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80,171 |
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70,553 |
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46,130 |
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Total stockholders equity |
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112,821 |
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102,129 |
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73,936 |
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Total liabilities and stockholders equity |
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$ |
289,667 |
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$ |
260,791 |
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$ |
211,349 |
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See accompanying notes to the unaudited consolidated financial statements.
3
rue21, inc. and subsidiaries
Consolidated Statements of Income
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Thirteen weeks ended |
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April 30, |
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May 1, |
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2011 |
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2010 |
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(Unaudited) |
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(in thousands, except per share data |
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Net sales |
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$ |
172,875 |
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$ |
137,772 |
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Cost of goods sold (includes certain buying,
occupancy and distribution center expenses) |
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105,629 |
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85,541 |
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Gross profit |
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67,246 |
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52,231 |
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Selling, general, and administrative expense |
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45,373 |
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37,294 |
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Depreciation and amortization expense |
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6,103 |
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4,983 |
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Income from operations |
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15,770 |
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9,954 |
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Interest (income) expense, net |
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(22 |
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28 |
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Income before income taxes |
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15,792 |
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9,926 |
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Provision for income taxes |
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6,173 |
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4,105 |
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Net income |
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$ |
9,619 |
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$ |
5,821 |
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Basic income per common share |
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$ |
0.39 |
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$ |
0.24 |
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Diluted income per common share |
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$ |
0.38 |
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$ |
0.23 |
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Weighted average basic common shares outstanding |
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24,383 |
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24,248 |
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Weighted average diluted common shares outstanding |
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25,063 |
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25,044 |
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See accompanying notes to the unaudited consolidated financial statements.
4
rue21, inc. and subsidiaries
Consolidated Statements of Cash Flows
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Thirteen weeks ended |
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April 30, |
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May 1, |
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2011 |
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2010 |
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(Unaudited, in thousands) |
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Operating activities |
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Net income |
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$ |
9,619 |
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$ |
5,821 |
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Adjustments to reconcile net income to net cash
provided by operating activities: |
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Depreciation and amortization |
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6,103 |
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4,983 |
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Loss on fixed asset disposals |
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173 |
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41 |
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Impairment of long-lived assets |
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124 |
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95 |
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Deferred taxes |
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(2,643 |
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(621 |
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Stock based compensation |
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800 |
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335 |
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Excess tax benefits from stock-based compensation activities |
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(216 |
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(267 |
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Changes in: |
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Accounts receivable |
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(3,607 |
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(3,454 |
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Merchandise inventory, net |
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(9,579 |
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(13,996 |
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Prepaid expenses and other current assets |
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(1,883 |
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(826 |
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Accounts payable |
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7,834 |
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14,383 |
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Accrued payroll and related taxes |
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(2,837 |
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(2,264 |
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Accrued expenses and other current liabilities |
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801 |
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(896 |
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Deferred rent and tenant allowances |
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7,196 |
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3,901 |
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Accrued income and franchise taxes |
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6,375 |
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2,145 |
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Other |
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(81 |
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(20 |
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Net cash provided by operating activities |
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18,179 |
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9,360 |
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Investing activities |
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Acquisition of property and equipment |
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(12,974 |
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(8,662 |
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Proceeds from the sale of property and equipment |
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4 |
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Net cash used for investing activities |
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(12,974 |
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(8,658 |
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Financing activities |
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Excess tax benefits from stock-based compensation activities |
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216 |
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267 |
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Proceeds from stock options exercised |
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55 |
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65 |
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Net cash provided by financing activities |
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271 |
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332 |
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Increase in cash and cash equivalents |
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5,476 |
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1,034 |
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Cash and cash equivalents, beginning of period |
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50,111 |
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26,751 |
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Cash and cash equivalents, end of period |
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$ |
55,587 |
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$ |
27,785 |
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Supplemental disclosure of cash flow information |
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Cash paid for interest |
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$ |
74 |
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$ |
84 |
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Cash paid for income taxes |
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$ |
2,332 |
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$ |
2,607 |
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See accompanying notes to the unaudited consolidated financial statements.
5
rue2l, inc. and subsidiaries
Notes to Unaudited Consolidated Financial Statements
Thirteen weeks ended April 30, 2011 and May 1, 2010
(Dollars in thousands unless otherwise indicated)
NOTE 1 Organization and Basis of Presentation
rue21, inc. (the Company or rue21) is a specialty retailer of girls and guys apparel and
accessories with 677, 638 and 565 stores as of April 30, 2011, January 29, 2011 and May 1, 2010,
respectively, in various strip centers, regional malls and outlet centers throughout the United
States. Sales are generally transacted for cash or checks and through the acceptance of third-party
credit and debit cards.
The consolidated financial statements include all of the accounts of the Company and its
wholly-owned subsidiaries, r services, llc and rue services corporation. All intercompany
transactions and balances have been eliminated in consolidation. At April 30, 2011, the Company
operated in one reportable segment.
In the opinion of management, the unaudited consolidated financial statements include all
adjustments, consisting of only normal recurring adjustments, necessary for the fair statement of
consolidated financial position, results of operations, and cash flows for the interim periods
presented. The accompanying unaudited consolidated financial statements have been prepared by the
Company, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosure normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States of America (GAAP)
have been condensed or omitted pursuant to such rules and regulations, although the Company
believes that the disclosures made are adequate to ensure that the information presented is not
misleading. Accordingly, these unaudited consolidated financial statements and related notes should
be read in conjunction with the consolidated financial statements and notes thereto for the fiscal
year 2010 included in the Companys Annual Report on Form 10-K.
The results of operations for the current and prior periods are not necessarily indicative of the
operating results for the full fiscal year.
NOTE 2 Summary of Significant Accounting Policies
Fiscal Year
The Companys fiscal year is 52 or 53 weeks ending on the Saturday nearest to January 31 of the
following year. As used herein, the first quarter of 2011 and the first quarter of 2010 refer
to the thirteen week periods ending April 30, 2011 and May 1, 2010, respectively.
Estimates
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. These
estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts
of net sales and expenses during the reporting period. Actual results could differ from those
estimates. On an ongoing basis, management reviews its estimates based on currently available
information. Changes in facts and circumstances may result in revised estimates.
Seasonality
Our business is seasonal and historically we have realized a higher portion of our net sales, net
income and operating cash flows in the second through the fourth fiscal quarters, attributable to
the impact of the back-to-school and holiday selling seasons. As a result, our working capital
requirements fluctuate during the year, increasing in mid-summer in anticipation of the
back-to-school selling season. Our business is also subject, at certain times, to calendar shifts
which may occur during key selling times such as school holidays, Easter and regional fluctuations
in the calendar during the back-to-school selling season.
Recent Accounting Standards
In June 2009, the Financial Accounting Standards Board (FASB) issued authoritative guidance in
connection with adding qualified special purpose entities into the scope of guidance for
consolidation of variable interest entities. This literature also modifies the
analysis by which a controlling interest of a variable interest entity is determined thereby
requiring the controlling interest to
6
rue2l, inc. and subsidiaries
Notes to Unaudited Consolidated Financial Statements
Thirteen weeks ended April 30, 2011 and May 1, 2010
(Dollars in thousands unless otherwise indicated)
consolidate the variable interest entity. A controlling
interest exists if a party to a variable interest entity has both (i) the power to direct the
activities of a variable interest entity that most significantly impact the entitys economic
performance and (ii) the obligation to absorb losses of or receive benefits from the entity that
could be potentially significant to the variable interest entity. The guidance is effective as of
the beginning of the first annual reporting period beginning after November 15, 2009 and will be
applied prospectively for interim and annual periods upon adoption. The Company has adopted the
guidance without any impact on the consolidated financial statements.
In January 2010, the FASB issued Accounting Standards Update (ASU) 2010-06, Improving Disclosures
about Fair Value Measurements (ASU 2010-6). ASU 2010-6 amends the FASBs authoritative guidance
related to fair value measurements and disclosures to require additional disclosures related to
transfers between levels in the hierarchy of fair value measurements. ASU 2010-6 is effective for
interim and annual fiscal years beginning after December 15, 2009. The standard does not change how
fair values are measured. The Company has adopted the guidance without any impact on the
consolidated financial statements.
The FASB issues ASUs to amend the authoritative literature in Accounting Standards Codification
(ASC). There have been a number of ASUs to date that amend the original text of ASC. Except for the
ASU listed above, those issued to date either (i) provide supplemental guidance, (ii) are technical
corrections, (iii) are not applicable to the Company or (iv) are not expected to have a significant
impact on the Company.
Reclassifications
Certain reclassifications have been made to the prior periods consolidated financial statement
amounts to conform to the current periods presentation.
NOTE 3 Earnings Per Share
Earnings per common share has been computed as follows (in thousands, except per share data):
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Thirteen weeks ended |
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April 30, |
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May 1, |
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2011 |
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2010 |
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(in thousands, except per share data) |
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Net income |
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$ |
9,619 |
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$ |
5,821 |
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Weighted average basic common shares outstanding |
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24,383 |
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24,248 |
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Impact of dilutive securities |
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680 |
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796 |
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Weighted average diluted common shares outstanding |
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25,063 |
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25,044 |
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Per common share: |
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Basic income per common share |
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$ |
0.39 |
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$ |
0.24 |
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Diluted income per common share |
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$ |
0.38 |
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$ |
0.23 |
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Equity awards to purchase 459,257 and 694,000 shares of common stock for the thirteen weeks ended
April 30, 2011 and May 1, 2010, respectively, were outstanding, but were not included in the
computation of weighted average diluted common share amounts as the effect of doing so would have
been anti-dilutive.
NOTE 4 Stock-Based Compensation
In November 2009, the Company adopted the 2009 Omnibus Incentive Plan (the 2009 Plan) in
connection with the Companys initial public offering, pursuant to which key employees, officers,
and directors shall be eligible to receive grants of stock options, stock appreciation rights,
restricted stock or restricted stock units to purchase or receive, as applicable, up to an
aggregate of 3,626,000 shares of common stock based on eligibility, vesting, and performance
standards established by the board of directors. Stock
7
rue2l, inc. and subsidiaries
Notes to Unaudited Consolidated Financial Statements
Thirteen weeks ended April 30, 2011 and May 1, 2010
(Dollars in thousands unless otherwise indicated)
options granted are generally exercisable
ratably over three or four years, subject to certain employment terms and conditions. The stock
options generally expire ten years from the date of issuance. To date, 516,132 stock options and
28,598 restricted stock units have been granted and no stock appreciation rights or restricted
stock have been issued under the 2009 Plan.
Effective May 15, 2003, the Company adopted the 2003 Ownership Incentive Plan (the 2003 Plan)
pursuant to which key employees, officers, and directors were eligible to receive options to
purchase common stock for an aggregate of up to 19.8% of the number of shares of the common stock
outstanding upon adoption of the 2003 Plan based on eligibility, vesting, and performance standards
established by the board of directors. Upon adopting the 2009 Plan, the Company discontinued use of
the 2003 Plan and no further
equity awards have been or will be made under the 2003 Plan.
The following table represents stock options granted, vested, and expired under the existing
share-based compensation plans for the thirteen weeks ended April 30, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
Average |
|
|
|
|
|
|
Common |
|
|
Average |
|
|
Remaining |
|
|
Aggregate |
|
|
|
Stock |
|
|
Exercise |
|
|
Contractual |
|
|
Intrinsic |
|
|
|
Options |
|
|
Price |
|
|
Term |
|
|
Value |
|
|
|
(in thousands) |
|
|
(per share) |
|
|
(in years) |
|
|
|
|
|
Outstanding January 29, 2011 |
|
|
1,441 |
|
|
$ |
15.63 |
|
|
|
7.83 |
|
|
$ |
21,349 |
|
Granted |
|
|
37 |
|
|
$ |
30.07 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(14 |
) |
|
$ |
3.98 |
|
|
|
|
|
|
|
|
|
Expired or forfeited |
|
|
(6 |
) |
|
|
27.76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding April 30, 2011 |
|
|
1,458 |
|
|
$ |
16.06 |
|
|
|
7.65 |
|
|
$ |
21,919 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested at April 30, 2011 |
|
|
646 |
|
|
$ |
9.51 |
|
|
|
6.64 |
|
|
$ |
13,644 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of April 30, 2011, the Company had 3,081,270 shares available for stock grants. The Company
recognized $800 and $335 in compensation expense related to stock options for the thirteen weeks
ended April 30, 2011 and May 1, 2010, respectively. The weighted average fair value of stock
options at the grant date was $16.13 and $18.44 for the thirteen weeks ended April 30, 2011 and May
1, 2010, respectively. The intrinsic value of options exercised was $369 and $849 for the thirteen
weeks ended April 30, 2011 and May 1, 2010, respectively. All outstanding vested options are
currently exercisable as of April 30, 2011.
The fair value of stock options was estimated at the date of grant using a Black-Scholes option
pricing model with the following range of assumptions:
|
|
|
|
|
|
|
|
|
|
|
Thirteen weeks ended |
|
|
April 30, |
|
May 1, |
|
|
2011 |
|
2010 |
Risk-free interest rate (1) |
|
|
2.1%-2.9 |
% |
|
|
3.0%-3.4 |
% |
Dividend yield |
|
|
|
|
|
|
|
|
Volatility factors for the expected market price of the Companys common stock (2) |
|
|
55.0 |
% |
|
|
53.0 |
% |
Weighted average expected term (3) |
|
6.0 years |
|
6.3 years |
|
|
|
(1) |
|
Based on the U.S. Treasury yield curve in effect at the time of grant with a term consistent with the expected life of stock options. |
|
(2) |
|
Expected stock price volatility is based on comparable volatilities of peer companies within rue21s industry. |
8
rue2l, inc. and subsidiaries
Notes to Unaudited Consolidated Financial Statements
Thirteen weeks ended April 30, 2011 and May 1, 2010
(Dollars in thousands unless otherwise indicated)
|
|
|
(3) |
|
Represents the period of time options are expected to be outstanding. The weighted-average expected option term was determined using
the simplified method as allowed by Staff Accounting Bulletin Topic 14. The expected term used to value a share option grant under
the simplified method is the midpoint between the vesting date and the contractual term of the share option. |
The following table summarizes information regarding non-vested outstanding stock options as
of April 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Averaged Fair |
|
|
|
|
|
|
|
Value at Grant |
|
|
|
Shares |
|
|
Date |
|
|
|
(in thousands) |
|
|
(per share) |
|
Non-vested as of January 29, 2011 |
|
|
881 |
|
|
$ |
11.16 |
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
37 |
|
|
$ |
16.13 |
|
Vested |
|
|
(100 |
) |
|
$ |
16.37 |
|
Cancelled |
|
|
(6 |
) |
|
|
15.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested as of April 30, 2011 |
|
|
812 |
|
|
$ |
11.04 |
|
|
|
|
|
|
|
|
As of April 30, 2011, there was $8,974 of unrecognized compensation expense related to non-vested
stock option awards that is expected to be recognized over a weighted-average period of 1.42 years.
The total fair value of shares vested during the thirteen weeks ended April 30, 2011 and May 1,
2010, was $1,629 and $361, respectively.
Restricted Stock Units
Time-based restricted stock unit awards vest generally over three years.
The following table summarizes information regarding non-vested outstanding restricted stock units
as of April 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Averaged Fair |
|
|
|
|
|
|
|
Value at Grant |
|
|
|
Shares |
|
|
Date |
|
|
|
(in thousands) |
|
|
(per share) |
|
Non-vested as of January 29, 2011 |
|
|
25 |
|
|
$ |
30.49 |
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
4 |
|
|
$ |
29.77 |
|
Vested |
|
|
|
|
|
$ |
|
|
Cancelled |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested as of April 30, 2011 |
|
|
29 |
|
|
$ |
30.39 |
|
|
|
|
|
|
|
|
As of April 30, 2011, there was $869 of unrecognized compensation expense related to non-vested
restricted stock unit awards that is expected to be recognized over a weighted-average period of
1.68 years. There was $0 total fair value of shares vested during the thirteen weeks ended April
30, 2011 and May 1, 2010, respectively.
9
rue2l, inc. and subsidiaries
Notes to Unaudited Consolidated Financial Statements
Thirteen weeks ended April 30, 2011 and May 1, 2010
(Dollars in thousands unless otherwise indicated)
NOTE 5 Property, Plant and Equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, |
|
|
January 29, |
|
|
May 1, |
|
|
|
2011 |
|
|
2011 |
|
|
2010 |
|
Furniture and fixtures |
|
$ |
77,613 |
|
|
$ |
73,635 |
|
|
$ |
61,867 |
|
Leasehold improvements |
|
|
82,509 |
|
|
|
75,445 |
|
|
|
58,938 |
|
Computer equipment, software and other |
|
|
18,932 |
|
|
|
18,044 |
|
|
|
16,406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
179,054 |
|
|
|
167,124 |
|
|
|
137,211 |
|
Less accumulated depreciation and amortization |
|
|
(81,077 |
) |
|
|
(75,753 |
) |
|
|
(60,493 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
97,977 |
|
|
$ |
91,371 |
|
|
$ |
76,718 |
|
|
|
|
|
|
|
|
|
|
|
In accordance with the FASBs authoritative guidance related to the impairment or disposal of
long-lived assets, impairment losses may be recorded on long-lived assets used in operations when
events and circumstances indicate that the assets might be impaired and the undiscounted cash flows
estimated to be generated by those assets are less than the carrying amounts of those assets. If
such a condition occurs, the assets are adjusted to their estimated fair value, which is determined
based upon prices for similar assets. Impairment charges of $124 and $95 were recognized for the
thirteen weeks ended April 30, 2011 and May 1, 2010, respectively, for assets related to stores to
be converted and are recorded in selling, general, and administrative expense in the accompanying
Consolidated Statements of Income.
NOTE 6 Fair Value
The FASBs authoritative guidelines require the categorization of assets and liabilities into
three levels based upon the assumptions (inputs) used to price the assets or liabilities. Level 1
provides the most reliable measure of fair value, whereas Level 3 generally requires significant
management judgment. The three levels are defined as follows:
|
|
|
Level 1: Unadjusted quoted prices in active markets for identical
assets and liabilities. The Companys cash and cash equivalents of
$55,587, $50,111 and $27,785 as of April 30, 2011, January 29, 2011
and May 1, 2010, respectively, are reported at fair value utilizing
Level 1 inputs. |
|
|
|
|
Level 2: Observable inputs other than those included in Level 1. For
example, quoted prices for similar assets or liabilities in active
markets or quoted prices for identical assets or liabilities in
inactive markets. |
|
|
|
|
Level 3: Unobservable inputs reflecting managements own assumptions
about the inputs used in pricing the asset or liability. The Company determined that the fair value
measurements related to the impaired long lived assets disclosed in
Note 5 are derived from significant other observable inputs. These
non-financial assets are measured on a non-recurring basis when events
and circumstances warrant. |
In accordance with ASC 820, the following tables represent the fair value hierarchy for the
Companys financial assets (cash equivalents) measured at fair value on a recurring basis as of
April 30, 2011 and May 1, 2010:
10
rue2l, inc. and subsidiaries
Notes to Unaudited Consolidated Financial Statements
Thirteen weeks ended April 30, 2011 and May 1, 2010
(Dollars in thousands unless otherwise indicated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at April 30, 2011 |
|
|
|
|
|
|
|
Quoted Market |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in Active |
|
|
|
|
|
|
Significant |
|
|
|
|
|
|
|
Markets for |
|
|
Significant Other |
|
|
Unobservable |
|
|
|
Carrying |
|
|
Identical Assets |
|
|
Observable |
|
|
Inputs |
|
|
|
Amount |
|
|
(Level 1) |
|
|
Inputs (Level 2) |
|
|
(level 3) |
|
Cash and cash Equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
55,587 |
|
|
$ |
55,587 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
55,587 |
|
|
$ |
55,587 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 7 Income Taxes
The provision for income taxes is based on the current estimate of the annual effective tax
rate and is adjusted as necessary for discrete events occurring in a particular period. The
effective income tax rate for the thirteen weeks ended April 30, 2011 was 39.1% as compared to
41.4% for the thirteen weeks ended May 1, 2010. The lower effective income tax rate was primarily
due to a discrete item we incurred for $0.6 million in expense related to our secondary offering of
common stock completed in March 2010. The Company classifies interest and penalties as an element
of tax expense. The amount of tax related interest and penalties for the thirteen weeks ended April
30, 2011 and May 1, 2010, respectively, was not material.
The Company recognizes income tax liabilities related to unrecognized tax benefits in accordance
with the FASBs authoritative guidance related to uncertain tax positions and adjusts these
liabilities when its judgment changes as the result of the evaluation of new information. The
Company does not anticipate any significant changes to the unrecognized tax benefits recorded at
the consolidated balance sheet date within the next 12 months.
NOTE 8 Commitments and Contingencies
From time to time, the Company is involved in litigation relating to claims arising out of the
normal course of business. As of the date hereof, the Company is not involved in any litigation at
this time that the Company believes will have a material adverse effect on its consolidated
financial condition, results of operation, or liquidity.
11
Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. All statements other than those
that are purely historical are forward-looking statements. Forward-looking statements give our
current expectations and projections relating to our financial condition, results of operations,
plans, objectives, future performance and business. You can identify forward-looking statements by
the fact that they do not relate strictly to historical or current facts. These statements may
include words such as anticipate, estimate, expect, project, plan, intend, believe,
may, will, should, can have, likely and other words and terms of similar meaning in
connection with any discussion of the timing or nature of future operating or financial performance
or other events. For example, all statements we make relating to our estimated and projected
earnings, revenues, costs, expenditures, cash flows, growth rates and financial results, our plans
and objectives for future operations, growth or initiatives, strategies, or the expected outcome or
impact of pending or threatened litigation are forward-looking statements. All forward-looking
statements are subject to risks and uncertainties that may cause actual results to differ
materially from those that we expected, including, but not limited to the following:
|
|
|
our failure to identify and respond to new and changing fashion trends, customer
preferences and other related factors; |
|
|
|
our failure to successfully execute our growth strategy, due to delays in store growth
and store conversions, difficulties executing sales and operating profit margin initiatives
and inventory shrinkage prevention; |
|
|
|
the failure of our new stores or the conversion of our existing stores to achieve sales
and operating levels consistent with our expectations; |
|
|
|
risks and challenges in connection with sourcing merchandise from third party domestic
and foreign vendors, including the risk that current or prospective vendors may be unable or
unwilling to supply us with adequate quantities of their merchandise in a timely manner or
at acceptable prices; |
|
|
|
our level of success in gaining and maintaining broad market acceptance of our exclusive
brands; |
|
|
|
our failure to protect our brand image; |
|
|
|
economic conditions, and their effect on the financial and capital markets, our vendors
and business partners, employment levels, consumer demand, spending patterns, inflation and
the cost of goods; |
|
|
|
our loss of key personnel or our inability to hire additional personnel; |
|
|
|
seasonality of our business; |
|
|
|
increases in costs of raw materials for our merchandise, fuel, or other energy,
transportation or utilities costs and in the costs of labor and employment; |
|
|
|
the impact of governmental laws and regulations and the outcomes of legal proceedings; |
|
|
|
disruptions in our supply chain and distribution facility; |
|
|
|
damage or interruption to our information systems; |
|
|
|
changes in the competitive environment in our industry and the markets in which we
operate; |
|
|
|
natural disasters, unusually adverse weather conditions, pandemic outbreaks, boycotts and
geo-political events; |
|
|
|
the incurrence of material uninsured losses or excessive insurance costs; |
|
|
|
our failure to maintain effective internal controls and |
|
|
|
other factors discussed in other reports or filings filed by us with the Securities and
Exchange Commission, including our Annual Report on Form 10-K for the year ended January 29,
2011. |
12
Our Business
We operate on a fiscal year calendar widely used by the retail industry that results in a
given fiscal year consisting of a 52- or 53-week period ending on the Saturday closest to January
31 of the following year. For example, references to fiscal year 2010 refer to the fiscal year
ended January 29, 2011.
rue21 is a fast growing specialty apparel retailer offering the newest fashion trends for
girls and guys at a great value. Although many of our customers are teenagers, we believe our
merchandise appeals to anyone who wants to look or feel 21. Our product offerings fall into three
categories: girls apparel; guys apparel and accessories; and girls accessories or our rue21 etc!
category. As of April 30, 2011, we operated 677 stores in 45 states.
Performance Metrics
In order to monitor the Companys success, the Companys management monitors certain key
performance metrics, including:
Net Sales
Net sales constitute gross sales net of any returns and merchandise discounts. Net sales
consist of sales from comparable stores and non-comparable stores.
Comparable Store Sales
A store is included in comparable store sales on the first day of the sixteenth month
after its opening, as new stores generally open with above run-rate sales volumes, which usually
extend for a period of at least three months, and comparability generally is achieved twelve months
after the initial three-month period after store opening. Comparable store sales include existing
stores that have been converted to our rue21 etc! layout. When a store that is included in
comparable store sales is in the process of being converted to our rue21 etc! layout, net sales
from that store remain in comparable store sales. There may be variations in the way in which some
of our competitors and other apparel retailers calculate comparable or same store sales. As a
result, data in this Quarterly Report on Form 10-Q regarding our comparable store sales may not be
comparable to similar data made available by other retailers. Non-comparable store sales include
sales not included in comparable store sales and sales from closed stores.
Measuring the change in year-over-year comparable store sales allows us to evaluate how our
store base is performing. Various factors affect comparable store sales, including:
|
|
|
consumer preferences, buying trends and overall economic trends; |
|
|
|
our ability to identify and respond effectively to fashion trends and customer
preferences; |
|
|
|
changes in our merchandise mix; |
|
|
|
the timing of our releases of new merchandise and promotional events; |
|
|
|
the level of customer service that we provide in our stores; |
|
|
|
our ability to source and distribute products efficiently; and |
|
|
|
the number of stores we open, close and convert in any period. |
As we continue to pursue our store growth strategy, we expect that a significant
percentage of our net sales increase will continue to come from non-comparable store sales. Opening
new stores is an important part of our growth strategy. Accordingly, comparable store sales is only
one element we use to assess the success of our growth strategy.
The retail apparel industry is cyclical, and consequently our net sales are affected by
general economic conditions. Purchases of apparel and accessories are sensitive to a number of
factors that influence the levels of consumer spending, including economic
13
conditions and the level of disposable consumer income, consumer debt, interest rates and
consumer confidence.
Our business is seasonal and as a result, our net sales fluctuate from quarter to
quarter. Net sales are usually higher in the second through fourth fiscal quarters, and
particularly in the months of August and December, as customers make back-to-school and holiday
purchases.
Gross Profit
Gross profit is equal to our net sales minus our cost of goods sold. Gross margin
measures gross profit as a percentage of our net sales. Cost of goods sold includes the direct cost
of purchased merchandise, distribution center costs, all freight costs incurred to get merchandise
to our stores, store occupancy costs and buying costs. The components of our cost of goods sold may
not be comparable to those of other retailers.
Our cost of goods sold is substantially higher in higher volume quarters because cost of
goods sold generally increases as net sales increase. Changes in the mix of our products, such as
changes in the proportion of accessories, may also impact our overall cost of goods sold. We review
our inventory levels on an ongoing basis in order to identify slow-moving merchandise, and
generally use markdowns to clear that merchandise. The timing and level of markdowns are not
seasonal in nature, but are driven by customer acceptance of our merchandise. If we misjudge the
market for our products, we may be faced with significant excess inventories for some products and
be required to mark down those products in order to sell them. Significant markdowns have reduced
our gross profit in some prior periods and may have a material adverse impact on our earnings for
future periods depending on the amount of the markdowns and the amount of merchandise affected.
Selling, General and Administrative Expense
Selling, general and administrative expense includes administration, share-based
compensation and store expenses, but excludes store occupancy costs and freight to stores. These
expenses do not generally vary proportionately with net sales. As a result, selling, general and
administrative expense as a percentage of net sales is usually higher in lower volume quarters and
lower in higher volume quarters. The components of our selling, general and administrative expense
may not be comparable to those of other retailers. We expect that our selling, general and
administrative expense will increase in future periods due to our continuing store growth and in
part to additional legal, accounting, insurance and other expenses we expect to incur as a result
of being a public company. Among other things, we expect that compliance with the Sarbanes-Oxley
Act and related rules and regulations will result in significant legal and accounting costs.
Selected First Quarter Highlights:
|
|
|
Net sales increased 25.5% to $172.9 million in the first quarter of 2011,
compared to $137.8 million in the first quarter of 2010. Comparable store sales increased
by 5.2% in the first quarter of 2011 as compared to an increase of 7.7% in the first
quarter of 2010 |
|
|
|
Gross margin increased 100 basis points to 38.9% from 37.9% in the first
quarter of 2010. |
|
|
|
Inventory per square foot at the end of the first quarter 2011 decreased 2.9%
compared to the first quarter of 2010. |
14
Results of Operations
The following tables summarize key components of our results of operations for the
periods indicated, both in dollars and as a percentage of net sales:
|
|
|
|
|
|
|
|
|
|
|
Thirteen weeks ended |
|
|
|
April 30, |
|
|
May 1, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(Unaudited) |
|
|
|
(in thousands, except operating data) |
|
Net sales |
|
$ |
172,875 |
|
|
$ |
137,772 |
|
Cost of goods sold |
|
|
105,629 |
|
|
|
85,541 |
|
|
|
|
|
|
|
|
Gross profit |
|
|
67,246 |
|
|
|
52,231 |
|
Selling, general and administrative expenses |
|
|
45,373 |
|
|
|
37,294 |
|
Depreciation and amortization expense |
|
|
6,103 |
|
|
|
4,983 |
|
|
|
|
|
|
|
|
Income from operations |
|
|
15,770 |
|
|
|
9,954 |
|
Interest (income) expense, net |
|
|
(22 |
) |
|
|
28 |
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
15,792 |
|
|
|
9,926 |
|
Provision for income taxes |
|
|
6,173 |
|
|
|
4,105 |
|
|
|
|
|
|
|
|
Net income |
|
$ |
9,619 |
|
|
$ |
5,821 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share |
|
|
|
|
|
|
|
|
Basic |
|
|
0.39 |
|
|
|
0.24 |
|
Diluted |
|
|
0.38 |
|
|
|
0.23 |
|
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
Basic |
|
|
24,383 |
|
|
|
24,248 |
|
Diluted |
|
|
25,063 |
|
|
|
25,044 |
|
|
|
|
|
|
|
|
|
|
Net sales |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of goods sold |
|
|
61.1 |
% |
|
|
62.1 |
% |
|
|
|
|
|
|
|
Gross margin |
|
|
38.9 |
% |
|
|
37.9 |
% |
Selling, general and administrative expenses |
|
|
26.2 |
% |
|
|
27.1 |
% |
Depreciation and amortization expense |
|
|
3.5 |
% |
|
|
3.6 |
% |
|
|
|
|
|
|
|
Income from operations |
|
|
9.1 |
% |
|
|
7.2 |
% |
Interest (income) expense, net |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
|
|
|
|
|
Income before income taxes |
|
|
9.1 |
% |
|
|
7.2 |
% |
Provision for income taxes |
|
|
3.6 |
% |
|
|
3.0 |
% |
|
|
|
|
|
|
|
Net income |
|
|
5.6 |
% |
|
|
4.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective Tax Rate |
|
|
39.1 |
% |
|
|
41.4 |
% |
|
|
|
|
|
|
|
|
|
Operating Data (unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of stores open at the end of the period |
|
|
677 |
|
|
|
565 |
|
Comparable store sales change |
|
|
5.2 |
% |
|
|
7.7 |
% |
15
The approximate percentage of our net sales derived from our product categories, based on our
internal merchandising system, is as follows:
|
|
|
|
|
|
|
|
|
|
|
Thirteen weeks ended |
|
|
April 30, |
|
May 1, |
|
|
2011 |
|
2010 |
Girls |
|
|
|
|
|
|
|
|
Apparel |
|
|
57.1 |
% |
|
|
57.0 |
% |
Accessories |
|
|
26.3 |
% |
|
|
25.3 |
% |
|
|
|
|
|
|
|
|
|
Guys Apparel and Accessories |
|
|
16.6 |
% |
|
|
17.7 |
% |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended April 30, 2011 Compared to Thirteen Weeks Ended May 1, 2010
Net Sales
In the thirteen weeks ended April 30, 2011, our net sales increased 25.5%, or $35.1 million, to
$172.9 million as compared to $137.8 million in the thirteen weeks ended May 1, 2010. This increase
in net sales was due to an increase of approximately 18% in the number of transactions, primarily
driven by new store openings during fiscal year 2011. Net sales also increased due to an increase
of approximately 6% in the average dollar value of transactions. During the thirteen weeks ended
April 30, 2011, we opened 39 new stores with no store closures compared to 31 new stores and closed
1 store in the thirteen weeks ended May 1, 2010. Our comparable store sales increased 5.2% in the
thirteen weeks ended April 30, 2011 compared to an increase of 7.7% in the thirteen weeks ended May
1, 2010. There were 533 comparable stores and 144 non-comparable stores open at April 30, 2011
compared to 445 and 120, respectively, at May 1, 2010.
In the thirteen weeks ended April 30, 2011, net sales of girls apparel, girls accessories and guys
apparel and accessories represented 57.1%, 26.3% and 16.6%, respectively, of total net sales as
compared to 57.0%, 25.3% and 17.7%, respectively, for the thirteen weeks ended May 1, 2010. In the
thirteen weeks ended April 30, 2011, net sales from the girls apparel, girls accessories and guys
apparel and accessories categories grew by approximately 26%, 30% and 17%, respectively, as
compared to the thirteen weeks ended May 1, 2010. The increase in girls accessories as a
percentage of total net sales was due to management efforts to expand the number of items in the
girls accessories category.
Gross Profit
Gross profit increased 28.7%, or $15.0 million, in the thirteen weeks ended April 30, 2011 to $67.2
million as compared to $52.2 million in the thirteen weeks ended May 1, 2010. Gross margin
increased 100 basis points to 38.9% for the thirteen weeks ended April 30, 2011 from 37.9% for the
thirteen weeks ended May 1, 2010. This increase in gross margin was primarily attributable to a 70
basis point improvement in store occupancy, freight and distribution costs. Additionally,
merchandise margin improved 30 basis points, driven primarily from reduced markdowns.
Selling, General and Administrative Expense
Selling, general and administrative expense increased 21.7%, or $8.1 million, to $45.4 million in
the thirteen weeks ended April 30, 2011 as compared to $37.3 million in the thirteen weeks ended
May 1, 2010. As a percentage of net sales, selling, general and administrative expense decreased to
26.2% in the thirteen weeks ended April 30, 2011 as compared to 27.1% in the thirteen weeks ended
May 1, 2010. During the thirteen weeks ended May 1, 2010, we incurred $0.6 million in expense
related to our secondary offering of common stock completed in March 2010. Excluding the impact of
these secondary offering costs, selling, general and administrative expenses as a percentage of net
sales, would have decreased to 26.6% in the thirteen weeks ended May 1, 2010.
Store operating expenses increased by $6.3 million in the thirteen weeks ended April 30, 2011 as
compared to the thirteen weeks ended May 1, 2010, due primarily to the operation of 677 stores as
of April 30, 2011 compared to the operation of 565 stores as of May 1, 2010. As a percentage of net
sales, store operating expenses decreased to 18.8% for the thirteen weeks ended April 30, 2011 as
16
compared to 19.0% in the thirteen weeks ended May 1, 2010, primarily as a result of leveraging of
store payroll and related costs.
Administrative and general expenses decreased as a percentage of net sales to 7.4% for the thirteen
weeks ended April 30, 2011 as
compared to 8.0% in the thirteen weeks ended May 1, 2010. The decrease in costs as a percent of
sales was a result of lower salary and related costs offset by stock compensation costs.
Additionally, as mentioned, the Company incurred $0.6 million in secondary offering costs in March
2010.
Depreciation and Amortization Expense
Depreciation and amortization expenses increased by $1.1 million to $6.1 million in the thirteen
weeks ended April 30, 2011 as compared to $5.0 million in the thirteen weeks ended May 1, 2010.
Depreciation and amortization expense decreased as a percentage of net sales to 3.5% for the
thirteen weeks ended April 30, 2011 as compared to 3.6% in the thirteen weeks ended May 1, 2010.
The increase in depreciation and amortization expense was primarily due to the continued opening of
new stores and conversions as well as distribution center infrastructure investments.
Interest (Income) Expense, Net
Interest income increased by $50 to $22 interest income for the thirteen weeks ended April 30, 2011
as compared to interest expense of $28 for the thirteen weeks ended May 1, 2010 as a result of the
Company increasing its cash balance on hand. The Company had no borrowings under the senior secured
credit facility during the thirteen weeks ended April 30, 2011.
Provision for Income Taxes
The provision for income taxes increased $2.1 million to $6.2 million in the thirteen weeks ended
April 30, 2011 as compared to $4.1 million in the thirteen weeks ended May 1, 2010. This increase
was due primarily to the $5.9 million increase in pre-tax income. The effective tax rates were
39.1% and 41.4% for the thirteen weeks ended April 30, 2011 and the thirteen weeks ended May 1,
2010, respectively. The lower effective income tax rate for the thirteen weeks ended May 1, 2010
was primarily due to a discrete item the Company incurred for $0.6 million in expense related to
our secondary offering of common stock completed in March 2010.
Net Income
Net income increased 65.2%, or $3.8 million, to $9.6 million for the thirteen weeks ended April 30,
2011 as compared to $5.8 million in the thirteen weeks ended May 1, 2010. This increase was due to
the factors discussed above.
Liquidity and Capital Resources
Our primary sources of liquidity are cash flows from operations and availability under our
senior secured credit facility. Our primary cash needs are for capital expenditures in connection
with opening new stores and converting existing stores to the rue21 etc! format, including the
additional working capital required for the related increase in merchandise inventories. Cash is
also required for investment in information technology and distribution facility enhancements and
funding normal working capital requirements. The most significant components of our working capital
are cash and cash equivalents, merchandise inventories, accounts payable and other current
liabilities.
As of April 30, 2011, we had cash and cash equivalents totaling $55.6 million. Our cash and cash
equivalents consist of cash on deposit and credit and debit card transactions. Our cash and cash
equivalents balance at April 30, 2011 increased by $5.5 million from $50.1 million at January 29,
2011. Components of this change in cash for the thirteen weeks ended April 30, 2011, as well as for
change in cash for the thirteen weeks ended May 1, 2010, are provided below in more detail.
17
A summary of operating, investing and financing activities are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
Thirteen weeks ended |
|
|
|
April 30, |
|
|
May 1, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(in thousands) |
|
Provided by operating activities |
|
$ |
18,179 |
|
|
$ |
9,360 |
|
Used for investing activities |
|
|
(12,974 |
) |
|
|
(8,658 |
) |
Provided by for financing activities |
|
|
271 |
|
|
|
332 |
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents |
|
$ |
5,476 |
|
|
$ |
1,034 |
|
|
|
|
|
|
|
|
Operating Activities
Operating activities consist primarily of net income adjusted for non-cash items, including
depreciation and amortization, deferred taxes, the effect of working capital changes and tenant
allowances received from landlords.
|
|
|
|
|
|
|
|
|
|
|
Thirteen weeks ended |
|
|
|
April 30, |
|
|
May 1, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(in thousands) |
|
Net income |
|
$ |
9,619 |
|
|
$ |
5,821 |
|
Adjustments to reconcile net income to net cash
provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
6,103 |
|
|
|
4,983 |
|
Deferred taxes |
|
|
(2,643 |
) |
|
|
(621 |
) |
Stock-based compensation |
|
|
800 |
|
|
|
335 |
|
Merchandise inventory |
|
|
(9,579 |
) |
|
|
(13,996 |
) |
Accounts payable |
|
|
7,834 |
|
|
|
14,383 |
|
Other working capital components |
|
|
5,964 |
|
|
|
(1,414 |
) |
All other |
|
|
81 |
|
|
|
(131 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
$ |
18,179 |
|
|
$ |
9,360 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities was $18.2 million and $9.4 million for the thirteen weeks
ended April 30, 2011 and the thirteen weeks ended May 1, 2010, respectively. The increase of $8.8
million in the thirteen weeks ended April 30, 2011 as compared to the thirteen weeks ended May 1,
2010 was primarily due to an increase in net income ($3.8 million), reduced merchandise inventory
growth ($4.4 million) and improvement in other working capital components ($7.4 million), primarily
deferred rent and tenant allowances. These cash inflows were principally offset by a reduction in
the increase in accounts payable ($6.5 million).
18
Investing Activities
Investing activities consist principally in of capital expenditures for new and converted stores.
|
|
|
|
|
|
|
|
|
|
|
Thirteen weeks ended |
|
|
|
April 30, |
|
|
May 1, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(in thousands) |
|
Capital expenditures, net of tenant allowances and
proceeds from the sale of property and equipment |
|
$ |
(7,187 |
) |
|
$ |
(5,040 |
) |
Tenant allowances |
|
|
(5,787 |
) |
|
|
(3,618 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
$ |
(12,974 |
) |
|
$ |
(8,658 |
) |
|
|
|
|
|
|
|
For the thirteen weeks ended April 30, 2011 capital expenditures increased $4.3 million to $13.0
million as compared to $8.7 million in the thirteen weeks ended May 1, 2010. During the thirteen
weeks ended April 30, 2011, we opened 39 new stores and converted 12 existing stores as compared to
31 new stores and 13 store conversions in the thirteen weeks ended May 1, 2010, respectively.
Capital expenditures for the new stores and conversions of existing stores increased $1.9 million
to $5.0 million during the thirteen weeks ended April 30, 2011 as compared to $3.1 million in the
comparable prior year period. Additionally, capital expenditures for store fixtures increased $0.5
million during the thirteen weeks ended April 30, 2011 as compared to the thirteen weeks ended May
1, 2010. These increases were offset by lower capital expenditures for the distribution center of
$0.5 million versus the comparable prior year period.
Financing Activities
Financing activities consist principally of proceeds from the exercise of employee stock options
and excess tax benefits from share-based award activities.
|
|
|
|
|
|
|
|
|
|
|
Thirteen weeks ended |
|
|
|
April 30, |
|
|
May 1, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(in thousands) |
|
Proceeds from stock options exercised |
|
|
55 |
|
|
|
65 |
|
Excess tax benefits from stock-based award activities |
|
|
216 |
|
|
|
267 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
$ |
271 |
|
|
$ |
332 |
|
|
|
|
|
|
|
|
Net cash of $0.3 million was provided by financing activities in the thirteen weeks ended April 30,
2011, which was primarily utilized to fund general corporate activities in the current fiscal year,
compared to $0.3 million for the same period in 2010.
Senior Secured Credit Facility
Effective April 10, 2008, we established a five-year $60.0 million senior secured credit
facility with Bank of America, N.A., which was amended on November 24, 2009. Key provisions of the
amendment included an increase in the borrowing ceiling to $85 million from $60 million, which is
further expandable at our option in increments of $5 million up to a maximum of $100 million under
certain defined conditions. Interest accrues at the higher of the Federal Funds rate plus .50%, the
prime rate or the adjusted LIBOR rate plus 1.00% plus the applicable margin which ranges from 1.25%
to 3.00%. Availability under our senior secured credit facility is
19
collateralized by a first
priority interest in all of our assets.
Our senior secured credit facility accrues interest at the Bank of America N.A. base rate,
defined at our option as the prime rate or the Eurodollar rate plus applicable margin, which ranges
from 1.25% to 3.00%, set quarterly depending upon average net availability under our senior secured
credit facility during the previous quarter. As of April 30, 2011 and May 1, 2010, $0 was
outstanding under
the senior secured credit facility.
Our senior secured credit facility includes a fixed charge covenant applicable only if net
availability falls below a 10% threshold. We are in compliance with all covenants under our senior
secured credit facility as of April 30, 2011 and expect to remain in compliance for the next twelve
months.
Off Balance Sheet Arrangements
We are not a party to any off balance sheet arrangements.
Contractual Obligations
There have been no significant changes to our contractual obligations and commercial commitments as
disclosed in our Annual Report on Form 10-K for the fiscal year ended January 29, 2011, other than
those which occur in the normal course of business.
Critical Accounting Policies and Estimates
The preparation of our financial statements in accordance with accounting principles generally
accepted in the United States of America requires management to adopt accounting policies and make
significant judgments and estimates to develop amounts reflected and disclosed in the financial
statements. In many cases, there are alternative policies or estimation techniques that could be
used. We maintain a process to review the application of our accounting policies and to evaluate
the appropriateness of the many estimates that are required to prepare the consolidated financial
statements. There have been no significant changes to our critical accounting policies and
estimates as discussed in our Annual Report on Form 10-K for the fiscal year ended January 29,
2011.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes to the quantitative and qualitative information concerning our
market risk since the end of the most recent fiscal year as disclosed in our Annual Report on Form
10-K for the year ended January 29, 2011. For further information, see Item 7A of the Companys
Annual Report on Form 10-K for the year ended January 29, 2011.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management has evaluated, under the supervision and with the participation of our Chief
Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and
procedures, as defined in Rule 13(a)-15(e), as of the end of the period covered by this Quarterly
Report on Form 10-Q pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934 (the Exchange
Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures as of the end of the period covered by this
Quarterly Report on Form 10-Q are effective in ensuring that information required to be disclosed
in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner
and (2) accumulated and communicated to our management, including our Chief Executive Officer and
Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect
that our disclosure controls and procedures will prevent or detect all error and all fraud. While
our disclosure controls and procedures are designed to provide reasonable assurance of their
effectiveness, because of the inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues and instances of fraud, if any,
within the Company have been detected.
Changes in Internal Control over Financial Reporting
There were no changes to our internal control over financial reporting during the thirteen weeks
ended April 30, 2011 that have
20
materially affected, or that are reasonably likely to materially
affect, our internal control over financial reporting.
PART IIOTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company is involved in litigation relating to claims arising out of the
normal course of business. As of the date hereof, the Company is not involved in any litigation at
this time that the Company believes will have a material adverse effect on its consolidated
financial condition, results of operation, or liquidity.
Item 1A. Risk Factors
There have been no significant changes in our risk factors from those disclosed in our Annual
Report on Form 10-K for the fiscal year ended January 29, 2011.
Item 6. Exhibits
31.1 |
|
Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer of rue21, inc. (Section
302 of the Sarbanes-Oxley Act of 2002) |
|
31.2 |
|
Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer of rue21, inc.
(Section 302 of the Sarbanes-Oxley Act of 2002) |
|
32.1 |
|
Certification of the Chief Executive Officer of rue21, inc. pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
32.2 |
|
Certification of the Chief Financial Officer of rue21, inc. pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
rue21, inc.
|
|
Date: June 6, 2011 |
By |
/s/ Robert Fisch
|
|
|
|
Robert Fisch |
|
|
|
Chairman and Chief Executive Officer |
|
|
|
|
|
Date: June 6, 2011 |
By |
/s/ Keith McDonough
|
|
|
|
Keith McDonough |
|
|
|
Senior Vice President and Chief Financial Officer |
|
22