Rue 21 2012 Annual Report Download - page 35

Gross Profit
Gross profit increased 22.1%, or $51.8 million, in fiscal year 2011 to $286.6 million from $234.8 million in
fiscal year 2010. Gross margin increased 70 basis points to 37.7% for fiscal year 2011 from 37.0% for fiscal year
2010. This increase was attributable to a 70 basis point increase in merchandise margin, primarily due to an
improvement in our initial mark-up rate in fiscal year 2011. Gross margin as a percent of sales was not impacted by
store occupancy, distribution and buying costs, as these costs were flat as a rate to net sales in fiscal year 2011
compared to fiscal year 2010.
Selling, General and Administrative Expense
Selling, general and administrative expense increased 21.0%, or $34.2 million to $197.2 million in fiscal year
2011 from $163.0 million in fiscal year 2010. As a percentage of net sales, selling, general and administrative
expense increased 20 basis points to 25.9% in fiscal year 2011 as compared to 25.7% in fiscal year 2010.
Store operating expenses increased 30 basis points as a percentage of sales primarily due to salary and related
expenses. Corporate administrative and general expenses decreased 10 basis points primarily due to a decrease to
salary and related expenses offset by a 30 basis point increase in stock based compensation.
Depreciation and Amortization Expense
Depreciation and amortization expense was flat as a percentage of net sales at 3.5% in fiscal year 2011 and
fiscal year 2010, respectively. Depreciation and amortization expense increased 21.1%, or $4.6 million, in fiscal
year 2011 to $26.6 million from $22.0 million and was primarily due to the continued opening of new stores and
conversions, investments in information technology and the completion of the home office expansion during fiscal
year 2011.
Provision for Income Taxes
The increase in provision for income taxes of $4.4 million in fiscal year 2011 from fiscal year 2010 was due
primarily to a $13.1 million increase in pre-tax income. The effective tax rate was at 38.0% in fiscal year 2011 as
compared to 39.2% in fiscal year 2010. This rate decrease was primarily the result of corporate restructuring and
discrete events in fiscal year 2011.
Net Income
Net income increased 28.8%, or $8.8 million, to $39.0 million in fiscal year 2011 from $30.2 million in fiscal
year 2010. This increase was due to the factors discussed above.
Liquidity and Capital Resources
Our primary source of liquidity is cash flows from operations. Our primary cash needs are generally for capital
expenditures incurred in connection with the opening of new stores, the refreshing existing stores and the related
increase in merchandise inventories. Cash is also required for investment in information technology, home office
and distribution facility infrastructure 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. Our working capital position benefits from the fact that we generally collect cash from sales
to customers the same day or, in the case of credit or debit card transactions, within several days of the related sale,
and we typically have up to 75 to 90 days to pay our vendors.
As of February 2, 2013, we had cash, cash equivalents and short term investments totaling $63.5 million. Our
cash and cash equivalents consist of cash on deposit and investments with a maturity of 90 days or less. Our cash,
cash equivalents and short term investments balance at February 2, 2013 decreased by $8.5 million from
$72.0 million at January 28, 2012. Components of this change in cash for fiscal year 2012, as well as for change in
cash for the fiscal years 2011 and 2010, are provided below in more detail.
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