Rue 21 2010 Annual Report Download

Download and view the complete annual report

Please find the complete 2010 Rue 21 annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 84

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84

2010 ANNUAL REPORT

Table of contents

  • Page 1
    2010 ANNUAL REPORT

  • Page 2

  • Page 3
    ... 100 Warrendale, Pennsylvania (Address of principal executive offices) 15086 (Zip Code) Registrant's telephone number, including area code: (724) 776-9780 Securities registered pursuant to Section 12(b) of the Act: Common Stock, par value $0.001 per share The NASDAQ Global Select Market (Title...

  • Page 4
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 5
    ... fact included in this Annual Report on Form 10-K 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...

  • Page 6
    .... The forward-looking statements included in this Annual Report on Form 10-K are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law. 2

  • Page 7
    rue21, inc. 2010 ANNUAL REPORT ON FORM 10-K TABLE OF CONTENTS Page PART I Item 1. Business ...Item 1A. Risk Factors ...Item 1B. Unresolved Staff Comments ...Item 2. Properties ...Item 3. Legal Proceedings ...Item 4. Reserved ... ... 4 13 27 27 28 28 PART II Item 5. Market for Registrant's Common ...

  • Page 8
    ... Product - girls, guys, rue21 etc! We offer a broad range of girls and guys apparel, and accessories, including footwear, jewelry and fragrances. • Flexible Real Estate - strip centers, regional malls, outlet centers. As of January 29, 2011 approximately 52% of our 638 stores were located...

  • Page 9
    ... a strong return on store investment. All of our new stores feature our rue21 etc! store-in-store layout, showcasing an expanded accessories offering. • Distinct company and customer culture. We have a strong core culture that emanates from our employees, many of whom are high school and college...

  • Page 10
    ...stores to attractively priced new locations, either in the same shopping center or in shopping centers in close proximity to the existing store, that would allow us to prominently showcase all of our product lines in a compelling store layout. In fiscal year 2010, we converted 31 stores to our rue21...

  • Page 11
    Store Locations The following store list shows the number of stores operated in each state as of January 29, 2011: State Total Number of Stores Alabama ...Arizona ...Arkansas ...California...Colorado ...Connecticut ...Delaware ...Florida ...Georgia ...Idaho ...Illinois ...Indiana ...Iowa ...Kansas ...

  • Page 12
    ... the space and the lease terms being offered. In fiscal year 2010, we opened 105 new stores. We plan to open a total of 110 stores in fiscal year 2011. We expect our store base to grow from 638 stores today to more than 1,000 stores. Our new store strategy is primarily focused on expanding our strip...

  • Page 13
    ... most current fashion trends in the market and utilize our product and sourcing teams to quickly introduce these fashions to our stores. All our brands are sold exclusively through our own stores. Our apparel and accessory brands include rue21 (Girls apparel), rue21 etc! (Girls accessories), tarea...

  • Page 14
    ... accessories and guys apparel and accessories. Our merchandise directors, with the support of our product development and visual teams, coordinate color and trends across the product categories to ensure brand consistency. We utilize fashion and color services, trade shows, vendors, retail shopping...

  • Page 15
    ... a planned expansion of the current distribution facility footprint to 360,000 square feet. Management Information Systems Our management information systems provide a full range of business process support and information to our store, merchandising, financial and real estate business teams. We...

  • Page 16
    ... only have a small part of their store and total product selection dedicated to apparel and accessories. Department stores, including Dillard's and JC Penney, or other junior retailers may be located in regional malls or outlet centers in small to middle markets; however we believe that we have been...

  • Page 17
    ... web site (www.rue21.com) is not intended to be incorporated by reference in this Annual Report on Form 10-K. Item 1A. Risk Factors. Our business is highly dependent upon our ability to identify and respond to new and changing fashion trends, customer preferences and other related factors. Fashion...

  • Page 18
    ...our customers. The failure of any new product offerings could have a material adverse effect on our business plan, results of operations and financial condition. Our growth strategy depends upon our ability to successfully open and operate a significant number of new stores each year in a timely and...

  • Page 19
    ... where to shop. As a result, we employ a viral approach to marketing that is designed to capture the interest of our customers and drive them into our stores. For example, we offer promotions and contests through our website, we provide product knowledge, trend statements and fashion blogs through...

  • Page 20
    ... store sales results to be materially lower than in recent periods and our expectations, which could harm our business and result in a decline in the price of our common stock. Our current merchandise planning and allocation strategies may not improve sales and merchandise margins. We currently...

  • Page 21
    ... service, ability to identify and respond to new and emerging fashion trends, brand image and scalability. We compete with a wide variety of large and small retailers for customers, vendors, suitable store locations and personnel. We face competition from major specialty apparel retailers that offer...

  • Page 22
    ... our customers' shopping experience, especially those competitors with significantly greater financial, marketing and other resources than ours. If our competitors were to duplicate or improve upon some or all of our in-store experience or product offerings, our competitive position and our business...

  • Page 23
    ... these plans may not result in expected increases in our net sales even though they increase our costs. To support our expanding business and execute our growth strategy, we will need significant amounts of cash from operations, including funds to pay our lease obligations, build out new store space...

  • Page 24
    ... our store locations, our corporate headquarters in Warrendale, Pennsylvania and our distribution facility in Weirton, West Virginia. We lease our distribution facility from the State of West Virginia under a lease that expires in 2012, with one five-year renewal option. We are currently negotiating...

  • Page 25
    ... in light of our growth strategy, could adversely affect our business. Our success depends in part upon our ability to attract, motivate and retain a sufficient number of store employees, including store managers, who understand and appreciate our corporate culture and customers, and are able to...

  • Page 26
    ... product shipments, including shipments to all of our stores. Our utilization of their delivery services for shipments, or those of any other shipping companies we may elect to use, is subject to risks, including increases in fuel prices, which would increase our shipping costs, and employee strikes...

  • Page 27
    ... Inc., or Island Pacific, enterprise resource planning system and Epicor Software Corporation, or Epicor, including its Customer Relationship Management and store point-of-sale, or POS, system. See "Business - Management Information Systems." We continue to make investments to upgrade, enhance, or...

  • Page 28
    ... hurt our business, financial condition and results of operations or may require us to modify our current business practices or incur increased costs. There are claims made against us from time to time that can result in litigation or regulatory proceedings which could distract management from our...

  • Page 29
    ... merchandise for sale. For example, in August 2008, the Consumer Product Safety Improvement Act of 2008, or CPSIA, was signed into law. The CPSIA imposes new requirements for the textile and apparel industries. These new requirements relate to all products marketed to children 12 years of age...

  • Page 30
    ... the market price for their common stock. Our amended and restated certificate of incorporation provides that the doctrine of corporate opportunity does not apply to Apax Partners, funds advised by Apax Partners, or any of our directors who are employees of or affiliated with Apax Partners, acting...

  • Page 31
    businesses, Apax Partners or funds advised by Apax Partners may have differing interests than our other stockholders. Our stock price may be volatile or may decline regardless of our operating performance or other factors. Shares of our common stock were sold in our initial public offering in ...

  • Page 32
    ... Market under the symbol "rue" since our initial public offering on November 13, 2009. Before then, there was no public market for our common stock. The following table sets forth the high and low sales prices of our common stock per share, as reported by The NASDAQ Global Select Market. The number...

  • Page 33
    ... in Item 12 of this Annual Report from our 2011 Proxy Statement under the heading "Equity Compensation Plan Information" is hereby incorporated by reference into this Item 5. Stock Price Performance Graph The following graph compares the cumulative stockholder return on our common stock from...

  • Page 34
    ..., net ...Provision for income taxes ...Net income ...Net income per common share Basic ...Diluted ...Weighted average common shares outstanding Basic ...Diluted ...Operating Data (unaudited): Comparable store sales change ...Number of stores open at end of period . . Total gross square feet end of...

  • Page 35
    ... as accessories, intimate apparel, footwear and fragrances. We converted 31 stores to the rue21 etc! layout in fiscal year 2010 and plan to convert 35 stores in fiscal year 2011. We expect to continue to drive our comparable store sales by increasing the penetration of our newer product categories...

  • Page 36
    ... our merchandise mix; • pricing; • 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...

  • Page 37
    ... 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...

  • Page 38
    ... 5.7% 0.4% 5.3% 2.1% 3.2% The approximate percentage of our net sales derived from our product categories, based on our internal merchandising system, is as follows: 2010 Fiscal Year 2009 2008 Girls Apparel ...Accessories...Guys Apparel and Accessories ...Total ...34 55.9% 25.7% 18.4% 56.7% 24...

  • Page 39
    ...in public company expenses and stock-based compensation expense of $0.4 million. In November 2009, we and Apax Partners, L.P (Apax) agreed to terminate the letter agreement relating to financial advisory services provided to the Company. As part of termination agreement, we were required to pay Apax...

  • Page 40
    ... compared to fiscal year 2008. There were 417 comparable stores and 118 non-comparable stores open at January 30, 2010 compared to 330 and 119, respectively, at January 31, 2009. In fiscal year 2009, net sales of girls apparel, girls accessories and guys apparel and accessories represented 56.7%, 24...

  • Page 41
    ... as compared to fiscal year 2008. In November 2009, we and Apax Partners, L.P (Apax) agreed to terminate the letter agreement relating to financial advisory services provided to the Company. As part of the termination agreement, we were required to pay Apax a one-time termination fee of $1.5 million...

  • Page 42
    ..., 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...

  • Page 43
    ...Fiscal Year Ended January 30, January 31, 2010 2009 (In thousands) Net income ...Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization...Deferred taxes ...Share-based compensation ...Merchandise inventory ...Accounts payable ...Other working...

  • Page 44
    ... year 2010, which was primarily utilized to fund general corporate activities. During fiscal year 2010, we received $0.7 million for the exercise of stock options, and we recognized a $1.5 million excess tax benefit related to share based award activities. We completed our initial public offering...

  • Page 45
    ...been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires estimates and judgments that affect the reported amounts of our assets, liabilities, net sales and expenses. Management bases estimates on historical...

  • Page 46
    ... financial statements. Revenue Recognition Revenue is recognized upon purchase of merchandise by customers. Allowances for sales returns are recorded as a reduction of sales in the periods in which the sales are recognized. Deferred revenue is established upon the purchase of gift cards by customers...

  • Page 47
    ...to our initial public offering, all director and employee stock option grants have been non-qualified options and restricted stock options. Recent Accounting Pronouncements In June 2009, the Financial Accounting Standards Board (FASB) issued authoritative guidance in connection with adding qualified...

  • Page 48
    ... 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. Item 7A. Quantitative and...

  • Page 49
    ... Statements and Supplementary Data. rue21, inc. and subsidiary INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm...Consolidated Balance Sheets as of January 29, 2011 and January 30, 2010...Consolidated Statements of Income for the fiscal years...

  • Page 50
    ... of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the...

  • Page 51
    rue21, inc. and subsidiary Consolidated Balance Sheets January 29, January 30, 2011 2010 (In thousands, except share and per share data) ASSETS Current assets: Cash and cash equivalents ...Accounts receivable...Merchandise inventory, net ...Prepaid expenses and other current assets ...Deferred tax ...

  • Page 52
    rue21, inc. and subsidiary Consolidated Statements of Income Fiscal Year Ended January 29, January 30, January 31, 2011 2010 2009 (In thousands, except share and per share data) Net sales...Cost of goods sold (includes certain buying, occupancy and distribution center expenses) ...Gross profit ......

  • Page 53
    ... of common stock in initial public offering (net of issuance costs) ...- Net income ...- Stock-based compensation expense ...- Stock issued for stock option exercises ...- Excess tax benefits from stockbased award activities ...- Balance January 30, 2010 ...Net income ...Stock-based compensation...

  • Page 54
    rue21, inc. and subsidiary Consolidated Statements of Cash Flows January 29, 2011 Fiscal Year Ended January 30, January 31, 2010 2009 (In thousands) Operating activities Net income ...Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ......

  • Page 55
    ...malls and outlet centers throughout the United States. Sales are generally transacted for cash, checks and through the acceptance of third-party credit and debit cards. On November 13, 2009, the Company completed an initial public offering of 7,780,252 shares of common stock at a price to the public...

  • Page 56
    ...-to-school selling season. Segment Reporting The Financial Accounting Standard Board (FASB) has established authoritative guidance for reporting information about a company's operating segments, including disclosures related to a company's products and services, geographic areas and major customers...

  • Page 57
    ... Notes to Consolidated Financial Statements - (continued) new inventory in certain circumstances will displace merchandise units currently on-hand. The markdown reserve is recorded as an increase to cost of goods sold in the accompanying Consolidated Statements of Income. The Company also estimates...

  • Page 58
    ...Notes to Consolidated Financial Statements - (continued) estimate of expected returns over a subsequent 30-day period. The allowance for sales returns was $413 and $349 for the fiscal years ended January 29, 2011 and January 30, 2010, respectively. Sales tax collected from customers is excluded from...

  • Page 59
    ...-line basis over the requisite service period of the award. The Company has historically issued new shares of common stock upon the exercise of employee stock options. Prior to the Company's initial public offering on November 13, 2009, all stock-based awards granted to employees had been incentive...

  • Page 60
    rue21, inc. and subsidiary Notes to Consolidated Financial Statements - (continued) average number of common shares outstanding plus the additional dilution for all potentially dilutive stock options utilizing the treasury stock method. The following table shows the amounts used in computing ...

  • Page 61
    ... management judgment. The three levels are defined as follows: • Level 1: Unadjusted quoted prices in active markets for identical assets and liabilities. The Company's cash and cash equivalents of $50,111 and $26,751 as of January 29, 2011 and January 30, 2010, respectively, are reported...

  • Page 62
    ...Omnibus Incentive Plan (the 2009 Plan) in connection with the Company's 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...

  • Page 63
    ... Financial Statements - (continued) 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...

  • Page 64
    ...over a weighted-average period of 1.9 years. Note 6 - Lease Commitments All of the Company's operations are conducted from leased premises. Store leases provide for base rentals, some of which increase over time, and the payment of a percentage of sales as additional rent when sales exceed specified...

  • Page 65
    ...15% of pretax annual compensation as defined in the Plan, subject to certain limitations and the Company matched 25% of the first 6% of base compensation that a participant contributes to the Plan. Profit-sharing contributions to the "Plan", as determined by the Board of Directors, are discretionary...

  • Page 66
    rue21, inc. and subsidiary Notes to Consolidated Financial Statements - (continued) Note 8 - Income Taxes The provision for income taxes at the fiscal years ended January 29, 2011, January 30, 2010 and January 31, 2009 consists of the current and deferred elements in the table below: January 29, ...

  • Page 67
    ... of tax related interest and penalties for fiscal years ended January 29, 2011, January 30, 2010 and January 31, 2009, respectively, was not material. The Company files a consolidated U.S. Federal Tax returns as well as various state tax returns. The Company's U.S. Federal tax returns are open for...

  • Page 68
    ... financial information (in thousands, except share and per share amounts): May 1, 2010 Thirteen Weeks Ended July 31, October 30, 2010 2010 January 29, 2011 Fiscal Year 2010 Net Sales ...Gross profit ...Net income...Basic income per common share ...Diluted income per common share ...Weighted average...

  • Page 69
    ... Financial Statements - (continued) Thirteen Weeks Ended August 1, October 31, 2009 2009 May 2, 2009 January 30, 2010 Fiscal Year 2009 Net Sales ...Gross profit ...Net income...Basic income per common share ...Diluted income per common share ...Weighted average basic common shares outstanding...

  • Page 70
    ..., our management concluded that, as of January 29, 2011, our internal control over financial reporting is effective based on those criteria. The Company's independent registered public accounting firm that audited the consolidated financial statements included in this Annual Report issued an...

  • Page 71
    ... of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of rue21, inc. and subsidiary as of January 29, 2011 and January 30, 2010 and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the...

  • Page 72
    ... Committee Report" in the 2011 Proxy Statement. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The information required by this item is incorporated herein by reference to the sections entitled "Stock Ownership" and "Equity Compensation Plan...

  • Page 73
    ... /s/ Robert N. Fisch Robert N. Fisch President, Chief Executive Officer and Chairman (principal executive officer) Senior Vice President and Chief Financial Officer (principal financial officer and principal accounting officer) Director March 29, 2011 /s/ Keith A. McDonough Keith A. McDonough...

  • Page 74
    ... rue 21, inc., incorporated by reference to Exhibit 10.1 to Registrant's Form 8-K filed on December 21, 2010. rue21, inc. Second Amended and Restated 2003 Ownership Incentive Plan, incorporated by reference to Exhibit 4.3 to the Registrant's Post-Effective Amendment No. 1 to Registration Statement...

  • Page 75
    ... & Young LLP, independent registered public accounting firm. 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). Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer of rue21 inc. (Section 302 of the...

  • Page 76
    Exhibit 21.1 Subsidiaries Name Jurisdiction of Organization r services llc ... Virginia 72

  • Page 77
    ... Incentive Plan of our reports dated March 29, 2011, with respect to the consolidated financial statements of rue21, inc. and subsidiary, and the effectiveness of internal control over financial reporting of rue21, inc. and subsidiary, included in this Annual Report (Form 10-K) for the year ended...

  • Page 78
    ... which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over...

  • Page 79
    ... which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over...

  • Page 80
    Exhibit 32.1 Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Annual Report of rue21, inc. (the Registrant) on Form 10-K for the period ended January 29, 2011 as filed with the...

  • Page 81
    Exhibit 32.2 Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Annual Report of rue21, inc. (the Registrant) on Form 10-K for the period ended January 29, 2011 as filed with the...

  • Page 82
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 83

  • Page 84
    800 Commonwealth Drive, Suite 100 · Warrendale, PA 15086 724-776-9780 .com