Rue 21 2011 Annual Report Download

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2011 ANNUAL REPORT
FASHION, QUALITY, VALUE

Table of contents

  • Page 1
    2011 ANNUAL REPORT FASHION, QUALITY, VALUE

  • Page 2

  • Page 3
    ... value of voting stock held by non-affiliates of the registrant as of July 31, 2011 was $289,187,433. The number of shares of the registrant's common stock outstanding as of March 20, 2012 was 24,479,968. Documents Incorporated by Reference Portions of the registrant's Proxy Statement for the Annual...

  • Page 4
    ... 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 5
    .... 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 6
    ... Compensation ...Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ...Certain Relationships and Related Transactions, and Director Independence ...Principal Accountant Fees and Services ...PART IV Exhibits, Financial Statement Schedules ... 23 25 26 36 37...

  • Page 7
    ... on October 30, 2009. rue21 is a fast growing specialty apparel retailer offering the newest fashion trends at every day great value. At the end of fiscal year 2011, we operated 755 stores in 46 states. Many of our stores are located in small- and middle-market communities that we believe have...

  • 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 28, 2012 approximately 52% of our 755 stores were located...

  • Page 9
    ..., compelling value proposition, and speed-to-market merchandising strategy have contributed to our strong operating results. Our Stores As of January 28, 2012, we operated 755 stores in 46 states throughout the United States. Our stores are located in strip centers, regional malls and outlet centers...

  • Page 10
    Store Locations The following store list shows the number of stores operated in each state as of January 28, 2012: State Total Number of Stores Alabama ...Arizona ...Arkansas ...California ...Colorado ...Connecticut ...Delaware ...Florida ...Georgia ...Idaho ...Illinois ...Indiana ...Iowa ...Kansas...

  • Page 11
    ...part-time sales associates, depending on store volume. Store Growth and Store Conversions Our in-house real estate team works along with our brokerage network to negotiate the leases, lease renewals, and construction costs of every site. We lease all of our stores and determine store locations based...

  • Page 12
    ... girls and guys, including graphic t-shirts, denim, dresses, shirts, hoodies, belts, jewelry, handbags, footwear, intimate apparel and other accessories at every day great value. We seek to identify the most current fashion trends in the market and utilize our product and sourcing teams to quickly...

  • Page 13
    ...built an extensive coupon program which is strategically planned during select times of the year to maximize sales, traffic and customer loyalty. Distribution We distribute all of our merchandise from our recently expanded 378,000 square foot distribution and office facility located in Weirton, West...

  • Page 14
    ... of business process support and information to our store, merchandising, financial and real estate business teams. We believe the combination of our business processes and systems provide us with improved operational efficiencies, scalability, increased management control and timely reporting that...

  • Page 15
    ...ability to open new stores in new markets each year and convert existing stores to the rue21 etc! format. The success of the strategy depends on many factors including, among others, our ability to: • identify suitable store locations primarily in strip centers and regional malls, the availability...

  • Page 16
    ..., as the number of our stores increases, we may face risks associated with market saturation of our product offerings or operating complexity as our store base grows. To the extent our new store openings are in markets where we have existing stores, we may experience reduced net sales in existing...

  • Page 17
    ... 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 18
    ... new store space, purchase inventory, pay personnel, further invest in our infrastructure and facilities, and pay for the increased costs associated with operating as a public company. In particular, payments under the operating leases associated with our stores and our distribution facility account...

  • Page 19
    ..., our ability to run and expand our business or to respond to competitive pressures would be limited and we could be required to delay, significantly curtail or eliminate planned store openings or operations or other elements of our growth strategy. Additional sites that we lease may be subject to...

  • Page 20
    ... and products or limiting our access to such arrangements or styles, brands or products; • initiate or expand sales of their products through their own stores or through the Internet to the retail market and therefore compete with us directly; or • sell their products through outlet centers or...

  • Page 21
    ...our operations, including for management of our supply chain, point-of-sale processing in our stores, our financial accounting and reporting, compensating our employees, managing our website and various other processes and transactions. See "Business - Management Information Systems." Our ability to...

  • Page 22
    ... financial statements as a whole or may negatively affect our operating results if changes to our business operation are required. The cost to defend future litigation may be significant. There also may be adverse publicity associated with litigation that could negatively affect customer perception...

  • Page 23
    ... over our management and policies. Two of the seven members of our board of directors are principals of Apax Partners. Funds advised by Apax Partners can take actions that have the effect of delaying a change in control of us or discouraging others from making tender offers for our shares, which...

  • Page 24
    ... 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 25
    Item 2. Properties. We do not own any real property. Our principal executive office is located in an 84,000 square foot space in Warrendale, Pennsylvania and is leased under a lease agreement expiring in 2021. Our 378,000 square foot distribution facility is located in Weirton, West Virginia. Our ...

  • Page 26
    ... 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 27
    Stock Price Performance Graph The following graph compares the cumulative stockholder return on our common stock from November 13, 2009 (the date of our initial public offering) through January 28, 2012 with the return on the Total Return Index for the NASDAQ Stock Market (US securities only) and ...

  • Page 28
    ... Weighted average common shares outstanding Basic ...24,417 24,277 22,267 21,914 21,705 Diluted ...25,051 25,002 23,037 22,814 22,842 Operating Data (unaudited): Comparable store sales change ...0.4% 2.1% 7.8% 3.7% 7.8% Number of stores open at end of period ...755 638 535 449 352 Total gross square...

  • Page 29
    ... strong returns on investment. We focus our real estate strategy on strip centers, regional malls and outlet centers, primarily in small and middle market communities, which we believe are underserved by traditional junior and young men's specialty apparel retailers. Our typical new store investment...

  • Page 30
    ... 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...

  • Page 31
    ... operations ...Interest (Income) expense, net ...Income before income taxes ...Provision for income taxes ...Net income ...Operating Data (unaudited) Number of stores open at the end of the period ...Gross square feet at the end of the period (in thousands) ...Comparable store sales change ... $760...

  • Page 32
    ... dollar value of transactions increased due to a higher average unit retail slightly offset by a decrease in units per transaction. During fiscal year 2011, we opened 120 new stores and closed 3 stores compared to 105 new stores and 2 store closures in fiscal year 2010. Our comparable store sales...

  • Page 33
    ... compared to fiscal year 2009. There were 523 comparable stores and 115 non-comparable stores open at January 29, 2011 compared to 417 and 118, respectively, at January 30, 2010. In fiscal year 2010, net sales of girls apparel, girls accessories and guys apparel and accessories represented 55.9%, 25...

  • Page 34
    ... agreement relating to financial advisory services provided to the Company. As part of termination agreement, we were required to pay Apax a one-time termination fee of $1.5 million, which is included as a component of public company expenses in fiscal year 2009. Excluding the impact of these items...

  • Page 35
    ..., 2012 Fiscal Year Ended January 29, January 30, 2011 2010 (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...

  • Page 36
    ... year 2011, which was primarily utilized to fund general corporate activities. During fiscal year 2011, we received $0.6 million for the exercise of stock options, and we recognized a $0.6 million excess tax benefit related to share based award activities. We completed our initial public offering...

  • Page 37
    ... have 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 34

  • Page 38
    ... of our significant accounting policies. The following reflect the significant estimates and judgments used in the preparation of our consolidated financial statements. Revenue Recognition Revenue is recognized upon purchase of merchandise by customers. Allowances for sales returns are recorded as...

  • Page 39
    ... of new information. We classify interest and penalties as an element of tax expense. The calculation of the deferred tax assets and liabilities, as well as the decision to recognize a tax benefit from an uncertain position and to establish a valuation allowance require management to make estimates...

  • Page 40
    Item 8. Financial Statements and Supplementary Data. rue21, inc. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm ...Consolidated Balance Sheets as of January 28, 2012 and January 29, 2011 ...Consolidated Statements of Income for the fiscal ...

  • Page 41
    ... of rue21, inc. as of January 28, 2012 and January 29, 2011, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended January 28, 2012. These financial statements are the responsibility of the Company's management. Our...

  • Page 42
    rue21, inc. Consolidated Balance Sheets January 28, January 29, 2012 2011 (in thousands, except per share data) Assets Current assets: Cash and cash equivalents ...Short term investments ...Accounts receivable ...Merchandise inventory, net ...Prepaid expenses and other current assets ...Deferred ...

  • Page 43
    rue21, inc. Consolidated Statements of Income Fiscal Year Ended January 28, January 29, January 30, 2012 2011 2010 (in thousands, except per share data) Net sales ...Cost of goods sold (includes certain buying, occupancy and distribution center expenses) ...Gross profit ...Selling, general, and ...

  • Page 44
    ..., except per share data) Total Balance January 31, 2009 ...Conversion of common stock, $0.004 par value to common stock, $.001 par value ...Issuance of common stock in initial public offering (net of issuance costs) ...Net income ...Stock-based compensation expense ...Stock issued for stock option...

  • Page 45
    rue21, inc. Consolidated Statements of Cash Flows Fiscal Year Ended January 28, January 29, January 30, 2012 2011 2010 (in thousands) Operating activities Net income ...Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ...Loss on fixed ...

  • Page 46
    ...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 47
    ... performance. 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. The Company does not have...

  • Page 48
    rue21, inc. and subsidiary Notes to Consolidated Financial Statements - (continued) Cash and Cash Equivalents Cash includes cash equivalents, which includes credit and debit card transactions. Credit and debit card transactions are typically paid to the Company on the next business day. The Company ...

  • Page 49
    ... years 2011, 2010, and 2009, respectively. Sales tax collected from customers is excluded from revenue and is included as part of accrued expenses and other current liabilities on the Company's Consolidated Balance Sheets. Deferred revenue is established upon the purchase of gift cards by customers...

  • Page 50
    ...straight-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. See Note 5 "Stock-Based Compensation." Store Pre-opening Costs Store pre-opening costs, which consist primarily of occupancy...

  • Page 51
    ... effect on net income and the weighted average number of shares of potential dilutive common stock (stock options): Fiscal Year Ended January 28, January 29, January 30, 2012 2011 2010 (in thousands, except per share data) Net income ...Weighted average basic common shares outstanding ...Impact of...

  • Page 52
    rue21, inc. and subsidiary Notes to Consolidated Financial Statements - (continued) Equity awards to purchase 699, 340 and 400 shares of common stock for the fiscal years 2011, 2010, and 2009, respectively, were outstanding, but were not included in the computation of weighted average diluted common...

  • Page 53
    ... 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...

  • Page 54
    ... the existing share based compensation plans for fiscal year ended January 28, 2012. WeightedAverage Exercise Price (per share) Weighted Average Remaining Contractual Term (in years) Common Stock Options (in thousands) Aggregate Intrinsic Value Outstanding January 29, 2011 ...Granted ...Exercised...

  • Page 55
    ... 28, 2012, there was $11,503 of unrecognized compensation expense related to non-vested stock option awards that is expected to be recognized over a weighted-average period of 1.18 years. The total fair value of shares vested during the fiscal years 2011, 2010, and 2009, was $2,720, $835 and $5,312...

  • Page 56
    ... follows: January 28, 2012 Fiscal Year Ended January 29, January 30, 2011 2010 Store Rent : Fixed minimum ...Contingent ...Total store rent, excluding common maintenance charges, real estate taxes and certain other expenses ...Offices, distribution facilities and equipment ...Total Rent Expense...

  • Page 57
    rue21, inc. and subsidiary Notes to Consolidated Financial Statements - (continued) Note 8 - Income Taxes The provision for income taxes at the fiscal years 2011, 2010, and 2009 consists of the current and deferred elements in the table below: Fiscal Year Ended January 28, 2012 January 29, 2011 ...

  • Page 58
    ...agreement with Apax Partners, L.P. (Apax) as successor to Saunders Karp & Megrue, LLC, relating to financial advisory services to be provided to the Company from time to time. Under the letter agreement, the Company agreed to pay an annual fee of $250 to Apax and to reimburse Apax for all reasonable...

  • Page 59
    ... information (in thousands, except share and per share amounts): April 30, 2011 Thirteen Weeks Ended July 30, October 29, 2011 2011 January 28, 2012 Fiscal Year 2011 Net Sales ...Gross profit ...Net income ...Basic income per common share ...Diluted income per common share ...Weighted average...

  • Page 60
    ..., our management concluded that, as of January 28, 2012, 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 61
    ... of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of rue21, inc. and subsidiary as of January 28, 2012 and January 29, 2011 and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the...

  • Page 62
    ...Report" in the 2012 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 Information...

  • Page 63
    .... 2. Financial Statement Schedule: All Schedules are omitted because they are not required or because the information is immaterial or provided elsewhere in the Consolidated Financial Statements or Notes thereto. 3. Exhibits: See Exhibit Index following the signature page of this Annual Report on...

  • Page 64
    ...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 Director Director Director Director Director March 27, 2012 March...

  • Page 65
    ...to Registration Statement on Form S-8 (SEC File No. 333-164401) filed on February 19, 2010. Specimen Common Stock Certificate, ...Current Report on Form 8-K filed on December 1, 2009. Second Amendment to Credit Agreement by and among rue21, as the Lead Borrower, rue services corporation, r services...

  • Page 66
    ... 101* * Lease by and between West Virginia Economic Development Authority, as Landlord, and rue21, inc. as Tenant, dated July 8, 2011, filed as Exhibit 10.1 to Current Report on Form 8-K filed on July 14, 2011 Form of Indemnification Agreement for Directors, incorporated by reference to Exhibit 10...

  • Page 67
    Exhibit 21.1 Subsidiaries Name Jurisdiction of Organization r services llc ...rue services corporation ... Virginia Delaware

  • Page 68
    ... dated March 27, 2012, with respect to the consolidated financial statements of rue21, inc., and the effectiveness of internal control over financial reporting of rue21, inc., included in this Annual Report (Form 10-K) for the year ended January 28, 2012. /s/ Pittsburgh, Pennsylvania March 27, 2012...

  • Page 69
    ..., 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 financial reporting. /s/ Robert Fisch Robert Fisch President and Chief Executive Officer...

  • Page 70
    ... 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 financial reporting. /s/ Keith McDonough Keith McDonough Senior Vice President and Chief Financial Officer...

  • Page 71
    ... Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the...

  • Page 72
    ... connection with the Annual Report of rue21, inc. (the Registrant) on Form 10-K for the period ended January 28, 2012 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Keith McDonough, Senior Vice President and Chief Financial Officer of the Registrant, certify...

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    800 Commonwealth Drive, Warrendale, PA 15086 724-776-9780 rue21.com