Rue 21 2011 Annual Report Download - page 31

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, stock-based compensation and store
expenses but excludes store occupancy costs and freight to stores. These expenses do not generally vary
proportionally 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. Selling, general and
administrative expense has increased significantly since fiscal 2009 due to additional legal, accounting, insurance
and other expenses we incurred as a result of being a public company and compliance with the Sarbanes-Oxley Act
and related rules and regulations and we expect it will increase in future periods due to our continuing store growth.
Results of Operations
The following tables summarize key components of our consolidated results of operations for the periods
indicated, both in dollars and as a percentage of net sales:
Fiscal Year Ended
January 28, January 29, January 30,
2012 2011 2010
(in thousands, except operating data)
Net Sales ............................................ $760,302 $634,728 $525,600
Cost of goods sold ..................................... 473,662 399,896 337,693
Gross profit .......................................... 286,640 234,832 187,907
Selling, general and administrative expenses ................ 197,176 163,006 134,078
Depreciation and amortization expense ..................... 26,618 21,980 16,994
Income from operations ................................. 62,846 49,846 36,835
Interest (Income) expense, net ............................ (9) 74 436
Income before income taxes ............................. 62,855 49,772 36,399
Provision for income taxes .............................. 23,905 19,528 14,382
Net income ........................................... $ 38,950 $ 30,244 $ 22,017
Operating Data (unaudited)
Number of stores open at the end of the period ............... 755 638 535
Gross square feet at the end of the period (in thousands) ....... 3,708 2,989 2,390
Comparable store sales change ........................... 0.4% 2.1% 7.8%
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