(By Kevin Donovan) If the devil popped up and offered to let us be 21 again in return for our immortal soul we would take him up on it in a flash. Alas, our soul is safe, but in the meantime we can relive our youth vicariously through rue21 Inc., a skinny jeans and more retailer that just got skinnier in price.
The Warrendale, Pa.-based rue21 slumped almost 4% in after-hours trading Thursday after reporting results that beat analysts' estimates and increasing guidance for the remainder of the year. Go figure. The move may have been in sympathy with other retail names such as Guess and Big Lots, or it may have been a reaction to a slow-moving back-to-school performance in August. Or it could have been the slowdown in comp-store sales growth to 1.1% vs. 2.4% in the year-ago period.
Whatever the cause, we think rue21's growth strategy, deft fashion sense and improving margins can reward the young at heart. "We don't want sales without margin expansion, we want both," CEO Bob Fisch said in conference call with investors.
The company reported earnings per share of $0.36 in its second quarter, two cents better than the average forecast and up from $031 a year ago. Net sales were up 17.9% from the 2011 quarter to $407.7 million. Rue21 opened 39 stores in the quarter bringing its total to 843 in 46 states. The company expects to open about 40 more stores in the remainder of 2012.
Gross margin improved to 39.4% of net sales compared with 39.1% in the second quarter of fiscal 2011, and selling, general and administrative expenses were $57.8 million or 28.6% of net sales, compared with $48.9 million or 28.3% of net sales. SG&A included $1.8 million in stock compensation expenses in the quarter. For the full year, rue21 raised EPS guidance by four cents to a range of $1.80 to $1.85.
Performance has been stellar so far in 2012. Shares of rue21 are up about 34% this year and have traded between $19.69 and $31.97 in the last 52 weeks. Insiders own about 5% of the company.
The balance sheet sports zero long-term debt, and the company is using cash to invest in new stores and repurchase shares.
On next year's estimates, rue21 trades at a PE of about 14, in line with that of the S&P 500. Estimates could increase as the holiday season unfolds. The company, which focuses on affordable fashion, says it will take a targeted approach to promotions during the holidays and hopes to avoid the margin damage other retailers often suffer during the Christmas season.
Key to rue21's success is the ability to quickly tack with the winds of teenage, young-adult fashion. As CEO Fisch put it, "Fast fashion is not one trend, it is how quickly and how nimbly you react to a trend. We can react to current fashion and consume the preferences and shape it into a trend. If it doesn't work, we clear out of it and we move on. If it is a strong seller, we reorder it and flow it back to the stores. And like a more typical mall team retailer, we also carry core fashion basics like denim."
rue21, Inc. operates as a specialty apparel retailer providing fashion apparel and accessories for girls and guys, including graphic T-shirts, denim, dresses, shirts, hoodies, belts, jewelry, handbags, footwear, intimate apparel, and other accessories.
Oh, and that name. Rue is French for street, of course, and 21 is the age we'd all like to be, the company says. As for that date with the devil, we're still open to offers.
(Image courtesy: Teen retailer by Shutterstock)