Rue 21 2012 Annual Report Download - page 31

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How We Assess the Performance of Our Business
In assessing the performance of our business, we consider a variety of performance and financial measures.
The key measures for determining how our business is performing are net sales, comparable store and non-
comparable store sales, gross profit margin and selling, general and administrative expense.
Net Sales
Net sales constitute gross sales net of any returns and merchandise discounts. Net sales consist of sales from
comparable stores and non-comparable stores.
Comparable Store Sales
A store is included in comparable store sales on the first day of the 16th month after its opening, as new stores
generally open with above run-rate sales volumes, which usually extend for a period of at least three months, and
comparability generally is achieved twelve months after the initial three-month period after store opening.
Comparable store sales include existing stores that have been converted to our rue21 etc! layout. When a store that
is included in comparable store sales is in the process of being converted to our rue21 etc! layout, net sales from that
store remain in comparable store sales. There may be variations in the way in which some of our competitors and
other apparel retailers calculate comparable or “same store” sales. As a result, data in this Annual Report on
Form 10-K regarding our comparable store sales may not be comparable to similar data made available by other
retailers. Non-comparable store sales include sales not included in comparable store sales and sales from closed
stores. The comparable sales increase for the period ended February 2, 2013 is compared to the corresponding
52 week period in fiscal year 2011. The extra week in fiscal year 2012 has been excluded from the comparable store
sales calculation.
Store Productivity
As we continue to pursue our store growth strategy, we expect that a significant percentage of our net sales
increase will continue to come from non-comparable store sales. Opening new stores is an important part of our
growth 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 of factors that influence the levels of
consumer spending, including economic conditions and the level of disposable consumer income, consumer debt,
interest rates and consumer confidence.
Gross Profit
Gross profit is equal to our net sales minus our cost of goods sold. Gross margin measures gross profit as a
percentage of our net sales. Cost of goods sold includes the direct cost of purchased merchandise, distribution center
costs, all freight costs incurred to get merchandise to our stores, store occupancy costs and buying costs. The
components of our cost of goods sold may not be comparable to those of other retailers.
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.
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