Rue 21 2011 Annual Report Download - page 34

Selling, General and Administrative Expense
Selling, general and administrative expense increased 21.6%, or $28.9 million to $163.0 million in fiscal year
2010 from $134.1 million in fiscal year 2009. As a percentage of net sales, selling, general and administrative
expense increased 20 basis points to 25.7% in fiscal year 2010 as compared to 25.5% in fiscal year 2009. In fiscal
year 2010, we incurred $3.1 million in public company expenses and stock-based compensation expense of
$2.2 million. In fiscal year 2009, we incurred $2.5 million 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 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, selling, general
and administrative expenses as a percentage of net sales, would have leveraged 10 basis points in fiscal year 2010.
Store operating expenses increased by $20.4 million primarily resulting from the operation of 638 stores as of
January 29, 2011 compared to the operation of 535 stores as of January 30, 2010. As a percentage of net sales, store
operating expenses were flat at 18.6% in each of fiscal year 2010 and fiscal year 2009.
Administrative and general expenses increased as a percentage of net sales to 7.1% in fiscal year 2010 as
compared to 6.9% in fiscal year 2009 due primarily to the incremental public company and stock-based
compensation expenses as discussed above. Excluding the impact of the incremental public company and stock-
based compensation expenses, administrative and general expenses as a percentage of net sales, would have
decreased to 6.2% in fiscal year 2010 as compared to 6.3% in fiscal year 2009.
Depreciation and Amortization Expense
Depreciation and amortization expense increased as a percentage of net sales to 3.5% in fiscal year 2010 from
3.2% in fiscal year 2009, or $5.0 million. The increase in depreciation and amortization expense was primarily due
to the continued opening of new stores and conversions, investments in information technology and the completion
of the distribution center expansion during fiscal year 2010.
Provision for Income Taxes
The increase in provision for income taxes of $5.1 million in fiscal year 2010 from fiscal year 2009 was due
primarily to a $13.4 million increase in pre-tax income. The effective tax rate was at 39.2% in fiscal year 2010 as
compared to 39.5% in fiscal year 2009. This rate decrease was the result of state tax credits offset by non-deductible
expenses in fiscal year 2010.
Net Income
Net income increased 37.4%, or $8.2 million, to $30.2 million in fiscal year 2010 from $22.0 million in fiscal
year 2009. 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 conversion of existing stores, and for 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.
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