UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED APRIL 28, 2012
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-34536
rue21, inc.
(Exact name of registrant as specified in its charter)
DELAWARE | 25-1311645 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
800 Commonwealth Drive
Warrendale, Pennsylvania 15086
(Address of principal executive office)
(724) 776-9780
(Registrants telephone number, including area code)
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ¨ | Accelerated filer | x | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The number of shares outstanding of the Registrants common stock was 24,522,893 as of May 23, 2012.
rue21, inc.
Form 10-Q
Quarter Ended April 28, 2012
2
PART I FINANCIAL INFORMATION
rue21, inc. and subsidiaries
April 28, 2012 |
January 28, 2012 |
April 30, 2011 |
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(Unaudited) | (Unaudited) | |||||||||||
(in thousands, except per share data) | ||||||||||||
Assets |
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Current assets: |
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Cash and cash equivalents |
$ | 51,845 | $ | 41,960 | $ | 55,587 | ||||||
Short term investments |
30,000 | 30,000 | | |||||||||
Accounts receivable |
9,864 | 6,675 | 10,222 | |||||||||
Merchandise inventory, net |
131,892 | 131,136 | 105,630 | |||||||||
Prepaid expenses and other current assets |
14,877 | 14,338 | 12,463 | |||||||||
Deferred tax assets |
6,064 | 5,121 | 6,699 | |||||||||
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Total current assets |
244,542 | 229,230 | 190,601 | |||||||||
Property and equipment, net |
126,650 | 117,798 | 97,977 | |||||||||
Other assets |
936 | 994 | 971 | |||||||||
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Total assets |
$ | 372,128 | $ | 348,022 | $ | 289,549 | ||||||
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Liabilities and stockholders equity |
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Current liabilities: |
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Accounts payable |
$ | 104,321 | $ | 103,914 | $ | 89,791 | ||||||
Accrued expenses and other current liabilities |
18,401 | 16,570 | 16,416 | |||||||||
Accrued payroll and related taxes |
7,715 | 12,045 | 9,216 | |||||||||
Deferred rent and tenant allowances, current portion |
9,324 | 8,652 | 7,759 | |||||||||
Accrued income and franchise taxes |
10,667 | 1,068 | 8,157 | |||||||||
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Total current liabilities |
150,428 | 142,249 | 131,339 | |||||||||
Non-current liabilities: |
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Deferred rent, tenant allowances and other long-term liabilities |
53,190 | 46,965 | 40,705 | |||||||||
Deferred tax liabilities |
7,523 | 11,585 | 4,684 | |||||||||
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Total non-current liabilities |
60,713 | 58,550 | 45,389 | |||||||||
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Commitments and Contingencies |
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Stockholders' equity: |
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Preferred stock par value $0.001 per share, 10,000 shares authorized; none issued or outstanding |
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Common stock par value $0.001 per share; 200,000 shares authorized; 24,493, 24,476 and 24,394 shares issued and outstanding, respectively. |
24 | 24 | 24 | |||||||||
Additional paid in capital |
39,858 | 37,696 | 32,626 | |||||||||
Retained earnings |
121,105 | 109,503 | 80,171 | |||||||||
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Total stockholder's equity |
160,987 | 147,223 | 112,821 | |||||||||
Total liabilities and stockholders equity |
$ | 372,128 | $ | 348,022 | $ | 289,549 | ||||||
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See accompanying notes to the unaudited consolidated financial statements.
3
rue21, inc. and subsidiaries
Consolidated Statements of Income
Thirteen weeks ended | ||||||||
April 28, 2012 |
April 30, 2011 |
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(Unaudited) | ||||||||
(in thousands, except per share data) |
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Net sales |
$ | 205,615 | $ | 172,875 | ||||
Cost of goods sold (includes certain buying, occupancy and distribution center expenses) |
125,934 | 105,629 | ||||||
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Gross profit |
79,681 | 67,246 | ||||||
Selling, general, and administrative expense |
53,796 | 45,373 | ||||||
Depreciation and amortization expense |
7,528 | 6,103 | ||||||
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Income from operations |
18,357 | 15,770 | ||||||
Interest income, net |
(30 | ) | (22 | ) | ||||
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Income before income taxes |
18,387 | 15,792 | ||||||
Provision for income taxes |
6,785 | 6,173 | ||||||
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Net income |
$ | 11,602 | $ | 9,619 | ||||
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Basic income per common share |
$ | 0.47 | $ | 0.39 | ||||
Diluted income per common share |
$ | 0.46 | $ | 0.38 | ||||
Weighted average basic common shares outstanding |
24,480 | 24,383 | ||||||
Weighted average diluted common shares outstanding |
25,119 | 25,063 |
See accompanying notes to the unaudited consolidated financial statements.
4
rue21, inc. and subsidiaries
Consolidated Statements of Cash Flows
Thirteen weeks ended | ||||||||
April 28, 2012 |
April 30, 2011 |
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(Unaudited, in thousands) |
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Operating activities: |
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Net income |
$ | 11,602 | $ | 9,619 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
7,528 | 6,103 | ||||||
Loss on fixed asset disposals |
| 173 | ||||||
Impairment of long-lived assets |
74 | 124 | ||||||
Deferred taxes |
(5,004 | ) | (2,643 | ) | ||||
Stock based compensation |
1,938 | 800 | ||||||
Excess tax benefits from stock-based compensation activities |
(97 | ) | (216 | ) | ||||
Changes in: |
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Accounts receivable |
(3,189 | ) | (3,937 | ) | ||||
Merchandise inventory, net |
(756 | ) | (9,579 | ) | ||||
Prepaid expenses and other current assets |
(539 | ) | (1,883 | ) | ||||
Accounts payable |
407 | 8,164 | ||||||
Accrued payroll and related taxes |
(4,330 | ) | (2,837 | ) | ||||
Accrued expenses and other current liabilities |
1,831 | 801 | ||||||
Deferred rent and tenant allowances |
6,897 | 7,196 | ||||||
Accrued income and franchise taxes |
9,696 | 6,375 | ||||||
Other |
25 | (81 | ) | |||||
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Net cash provided by operating activities |
26,083 | 18,179 | ||||||
Investing activities: |
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Acquisition of property and equipment |
(16,422 | ) | (12,974 | ) | ||||
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Net cash used for investing activities |
(16,422 | ) | (12,974 | ) | ||||
Financing activities: |
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Excess tax benefits from stock-based compensation activities |
97 | 216 | ||||||
Proceeds from stock options exercised |
127 | 55 | ||||||
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Net cash provided by financing activities |
224 | 271 | ||||||
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Increase in cash and cash equivalents |
9,885 | 5,476 | ||||||
Cash and cash equivalents, beginning of period |
41,960 | 50,111 | ||||||
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Cash and cash equivalents, end of period |
$ | 51,845 | $ | 55,587 | ||||
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Supplemental disclosure of cash flow information |
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Cash paid for interest (line of credit fees) |
$ | 74 | $ | 74 | ||||
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Cash paid for income taxes |
$ | 2,129 | $ | 2,332 | ||||
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See accompanying notes to the unaudited consolidated financial statements.
5
rue21, inc and subsidiaries
Notes to unaudited Consolidated Financial Statements
Thirteen weeks ended April 28, 2012 and April 30, 2011
(Dollars in thousands unless otherwise indicated)
NOTE 1 Organization and Basis of Presentation
rue21, inc. and subsidiaries (the Company or rue21) is a specialty retailer of girls and guys apparel and accessories with 795, 755 and 677 stores as of April 28, 2012, January 28, 2012 and April 30, 2011, respectively, in various strip centers, regional malls and outlet centers throughout the United States. Sales are generally transacted for cash or checks and through the acceptance of third-party credit and debit cards.
The consolidated financial statements include all of the accounts of the Company and its wholly-owned subsidiaries, r services, llc and rue services corporation. All intercompany transactions and balances have been eliminated in consolidation. At April 28, 2012, the Company operated in one reportable segment.
In the opinion of management, the unaudited consolidated financial statements include all adjustments, consisting of only normal recurring adjustments, necessary for the fair statement of consolidated financial position, results of operations, and cash flows for the interim periods presented. The accompanying unaudited consolidated financial statements have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosure normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures made are adequate to ensure that the information presented is not misleading. Accordingly, these unaudited consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended January 28, 2012 included in the Companys Annual Report on Form 10-K.
Certain reclassifications have been made to the prior periods consolidated financial statement amounts to conform to the current periods presentation.
The results of operations for the current and prior periods are not necessarily indicative of the operating results for the full fiscal year.
NOTE 2 Summary of Significant Accounting Policies
Fiscal Year
The Companys fiscal year is 52 or 53 weeks ending on the Saturday nearest to January 31 of the following year. As used herein, the first quarter of 2012 and the first quarter of 2011 refer to the thirteen week periods ending April 28, 2012 and April 30, 2011, respectively.
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the reporting period. Actual results could differ from those estimates. On an ongoing basis, management reviews its estimates based on currently available information. Changes in facts and circumstances may result in revised estimates.
Seasonality
Our operations are seasonal in nature and consist of two principal selling seasons: Spring (the first and second quarters) and Fall (the third and fourth quarters). Generally, our highest sales volume occurs in the fourth quarter, which includes the holiday selling season. Accordingly, cash requirements are highest in the third quarter as our inventories build in advance of the holiday season. In addition, our quarterly results can be affected by the timing of new store openings and store closings, the amount of sales contributed by new and existing stores and the timing of certain holidays.
6
Recent Accounting Standards
The FASB issues ASUs to amend the authoritative literature in Accounting Standards Codification (ASC). There have been a number of ASUs to date that amend the original text of ASC. ASUs during the current period (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to the Company or (iv) are not expected to have a significant impact on the Company.
Subsequent Events
rue21s Board of Directors has authorized a stock repurchase program granting the Company authority to repurchase up to $50 million of the Companys common stock. Under the stock repurchase program, the Company may repurchase shares in the open market or through privately negotiated transactions. The timing and actual number of shares repurchased under the program will depend on a variety of factors including price, corporate and regulatory requirements, and other market and business conditions, and rue21 may suspend or discontinue the repurchase program at any time, and may thereafter reinstitute purchases, all without prior announcement.
NOTE 3 Earnings Per Share
Earnings per common share has been computed as follows:
Thirteen weeks ended | ||||||||
April 28, 2012 |
April 30, 2011 |
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(in thousands, except per share data) |
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Net income |
$ | 11,602 | $ | 9,619 | ||||
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Weighted average basic common shares outstanding |
24,480 | 24,383 | ||||||
Impact of dilutive securities |
639 | 680 | ||||||
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Weighted average diluted common shares outstanding |
25,119 | 25,063 | ||||||
Per common share: |
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Basic income per common share |
$ | 0.47 | $ | 0.39 | ||||
Diluted income per common share |
$ | 0.46 | $ | 0.38 |
Stock options to purchase 845,816 and 459,257 shares of common stock during the first quarter of 2012 and the first quarter of 2011, respectively, were outstanding, but were not included in the computation of weighted average diluted common share amounts as the effect of doing so would have been anti-dilutive.
NOTE 4 Stock-Based Compensation
In November 2009, the Company adopted the 2009 Omnibus Incentive Plan (the 2009 Plan) in connection with the Companys initial public offering, pursuant to which key employees, officers, and directors shall be eligible to receive grants of stock options, stock appreciation rights, restricted stock, restricted stock units or performance share units to purchase or receive, as applicable, up to an aggregate of 3,626,000 shares of common stock based on eligibility, vesting, and performance standards established by the board of directors. Stock options granted are generally exercisable ratably over three or four years, subject to certain employment terms and conditions. The stock options generally expire ten years from the date of issuance.
Effective May 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 the 2003 Plan based on eligibility, vesting, and performance standards established by the board of directors. Upon adopting the 2009 Plan, the Company discontinued use of the 2003 Plan and no further equity awards have been or will be made under the 2003 Plan.
7
The Company recognized $1.9 million in compensation expense related to stock options during the first quarter of 2012 and $0.8 million in compensation expense related to stock options for the first quarter of 2011, respectively.
The following table represents stock option activity during the first quarter of 2012.
Common Stock Options |
Weighted- Average Exercise Price |
Weighted Average Remaining Contractual Term |
Aggregate Intrinsic Value |
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(in thousands) | (per share) | (in years) | (in thousands) | |||||||||||||
Outstanding January 28, 2012 |
1,600 | $ | 18.41 | 7.32 | $ | 15,680 | ||||||||||
Granted |
109 | $ | 27.24 | |||||||||||||
Exercised |
(17 | ) | $ | 7.48 | ||||||||||||
Expired or forfeited |
(13 | ) | $ | 19.92 | ||||||||||||
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Outstanding April 28, 2012 |
1,679 | $ | 19.08 | 7.26 | $ | 20,963 | ||||||||||
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Vested at April 28, 2012 |
873 | $ | 12.88 | 6.16 | $ | 16,264 | ||||||||||
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As of April 28, 2012, the Company had 2,403,096 shares available for stock grants. The weighted average fair value of stock options at the grant date was $13.64 during the first quarter of 2012 and $16.13 for the first quarter 2011. The intrinsic value of options exercised was $0.3 million during the first quarter of 2012 and $0.4 million for the first quarter of 2011. All outstanding vested options are currently exercisable as of April 28, 2012.
The fair value of stock options was estimated at the date of grant using a Black-Scholes option pricing model with the following range of assumptions:
Thirteen weeks ended | ||||||||
April 28, 2012 |
April 30, 2011 |
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Risk-free interest rate (1) |
1.8% | 2.1%-2.9% | ||||||
Dividend yield |
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Volatility factors for the expected market price of the Companys common stock (2) |
53.0% | 55.0% | ||||||
Weighted average expected term (3) |
6.0 years | 6.0 years |
(1) | Based on the U.S. Treasury yield curve in effect at the time of grant with a term consistent with the expected life of stock options. |
(2) | Expected stock price volatility is based on comparable volatilities of peer companies within rue21s industry. |
(3) | Represents the period of time options are expected to be outstanding. The weighted-average expected option term was determined using the simplified method as allowed by Staff Accounting Bulletin Topic 14. The expected term used to value a share option grant under the simplified method is the midpoint between the vesting date and the contractual term of the share option. |
As of April 28, 2012, there was $11.2 million of unrecognized compensation expense related to non-vested stock option awards that is expected to be recognized over a weighted-average period of 1.19 years. The total fair value of shares vested during the first quarter of 2012 was $1.7 million and $1.6 million for the first quarter of 2011.
8
Restricted Stock Units
Time-based restricted stock unit awards vest generally over three years.
Performance-based stock unit awards generally vest over three years if the performance goal is achieved in the first year period. The level of goal achievement, if any, will determine the number of shares that may be received.
The following table summarizes information regarding non-vested outstanding restricted stock units as of April 28, 2012:
Restricted Stock Grants
Time-Based Restricted Stock Units | Performance Share Units | |||||||||||||||
Thirteen weeks Ended April 28, 2012 | Thirteen weeks Ended April 28, 2012 | |||||||||||||||
Weighted Averaged Fair Value at Grant Date |
Weighted Averaged Fair Value at Grant Date |
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Shares | Shares | |||||||||||||||
(in thousands) | (per share) | (in thousands) | (per share) | |||||||||||||
Non-vested as of January 28, 2012 |
162 | $ | 29.85 | | $ | | ||||||||||
Granted |
162 | $ | 27.20 | 197 | $ | 27.26 | ||||||||||
Vested |
(2 | ) | $ | 21.59 | | $ | | |||||||||
Cancelled |
| $ | | | $ | | ||||||||||
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Non-vested as of April 28, 2012 |
322 | $ | 28.56 | 197 | $ | 27.26 | ||||||||||
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As of April 28, 2012, there was $14.3 million of unrecognized compensation expense related to non-vested restricted stock unit awards that is expected to be recognized over a weighted-average period of 1.62 years.
There was no material value for the total grant date fair value of shares vested during the first quarter of 2012 and first quarter of 2011.
9
NOTE 5 Property and Equipment
April 28, 2012 |
January 28, 2012 |
April 30, 2011 |
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(in thousands) | ||||||||||||
Furniture and fixtures |
$ | 98,934 | $ | 93,301 | $ | 77,613 | ||||||
Leasehold improvements |
112,740 | 102,731 | 82,509 | |||||||||
Computer equipment, software and other |
23,247 | 22,541 | 18,932 | |||||||||
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234,921 | 218,573 | 179,054 | ||||||||||
Less accumulated depreciation and amortization |
(108,271 | ) | (100,775 | ) | (81,077 | ) | ||||||
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$ | 126,650 | $ | 117,798 | $ | 97,977 | |||||||
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In accordance with the FASBs authoritative guidance related to the impairment or disposal of long-lived assets, impairment losses may be recorded on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. If such a condition occurs, the assets are adjusted to their estimated fair value, which is determined based upon prices for similar assets. Impairment charges are recorded in selling, general, and administrative expense in the accompanying Consolidated Statements of Income.
NOTE 6 Fair Value
The FASBs authoritative guidelines require the categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets or liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment. The three levels are defined as follows:
| Level 1: Unadjusted quoted prices in active markets for identical assets and liabilities. The Companys cash, cash equivalents, and short term investments of $81,845, $71,960 and $55,587 as of April 28, 2012, January 28, 2012 and April 30, 2011, respectively, are reported at fair value utilizing Level 1 inputs. |
| Level 2: Observable inputs other than those included in Level 1. For example, quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets. |
| Level 3: Unobservable inputs reflecting managements own assumptions about the inputs used in pricing the asset or liability. The Company determined that the fair value measurements related to the impaired long lived assets disclosed in Note 5 are derived from significant other observable inputs. These non-financial assets are measured on a non-recurring basis when events and circumstances warrant. |
In accordance with ASC 820, the following tables represent the fair value hierarchy for the Companys financial assets (cash equivalents) measured at fair value on a recurring basis as of April 28, 2012 and April 30, 2011:
10
Fair Value Measurements at April 28, 2012 | ||||||||||||||||
Carrying Amount |
Quoted Market Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
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Cash and cash Equivalents |
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Cash |
$ | 51,845 | $ | 51,845 | $ | | $ | | ||||||||
Short Term Investments |
$ | 30,000 | $ | 30,000 | $ | | $ | | ||||||||
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Total |
$ | 81,845 | $ | 81,845 | $ | | $ | | ||||||||
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NOTE 7 Income Taxes
The provision for income taxes is based on the current estimate of the annual effective tax rate and is adjusted as necessary for discrete events occurring in a particular period. The effective income tax rate for the first quarter of 2012 was 36.9% as compared to 39.1% for the first quarter of 2011. The lower effective income tax rate was primarily the result of corporate restructuring and higher deductible permanent items over the prior year. The Company classifies interest and penalties as an element of tax expense. The amount of tax related interest and penalties for the first quarter of 2012 and 2011, respectively, was not material.
The Company recognizes income tax liabilities related to unrecognized tax benefits in accordance with the FASBs authoritative guidance related to uncertain tax positions and adjusts these liabilities when its judgment changes as a result of the evaluation of new information. The Company does not anticipate any significant changes to the unrecognized tax benefits recorded at the consolidated balance sheet date within the next 12 months.
NOTE 8 Commitments and Contingencies
The Company is subject to various proceedings, lawsuits, disputes, and claims arising in the ordinary course of our business. Many of these actions raise complex factual and legal issues and are subject to uncertainties. Actions filed against us from time to time include commercial, intellectual property, customer, and employment actions, including class action lawsuits. The plaintiffs in some actions seek unspecified damages or injunctive relief, or both. Actions are in various procedural stages, and some are covered in part by insurance. We cannot predict with assurance the outcome of actions brought against us. Accordingly, adverse developments, settlements, or resolutions may occur and negatively impact income in the quarter of such development, settlement, or resolution. If a potential loss arising from these lawsuits, claims and pending actions is probable and reasonably estimable, we record the estimated liability based on circumstances and assumptions existing at the time.
11
Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than those that are purely historical 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-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as anticipate, estimate, expect, project, plan, intend, believe, may, should, can have, likely and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. For example, all statements we make relating to our estimated and projected earnings, revenues, costs, expenditures, cash flows, growth rates and financial results, our plans and objectives for future operations, growth or initiatives, strategies, or the expected outcome or impact of pending or threatened litigation are forward-looking statements. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected, including, but not limited to the following:
| our failure to identify and respond to new and changing fashion trends, customer preferences and other related factors; |
| our failure to successfully execute our growth strategy, due to delays in store growth and store conversions, difficulties executing sales and operating profit margin initiatives and inventory shrinkage prevention; |
| the failure of our new stores or the conversion of our existing stores to achieve sales and operating levels consistent with our expectations; |
| risks and challenges in connection with sourcing merchandise from third party domestic and foreign vendors, including the risk that current or prospective vendors may be unable or unwilling to supply us with adequate quantities of their merchandise in a timely manner or at acceptable prices; |
| our level of success in gaining and maintaining broad market acceptance of our exclusive brands; |
| our failure to protect our brand image; |
| economic conditions, and their effect on the financial and capital markets, our vendors and business partners, employment levels, consumer demand, spending patterns, inflation and the cost of goods; |
| our loss of key personnel or our inability to hire additional personnel; |
| seasonality of our business; |
| increases in costs of raw materials for our merchandise, fuel, or other energy, transportation or utilities costs and in the costs of labor and employment; |
| the impact of governmental laws and regulations and the outcomes of legal proceedings; |
| disruptions in our supply chain and distribution facility; |
| damage or interruption to our information systems; |
| changes in the competitive environment in our industry and the markets in which we operate; |
| natural disasters, unusually adverse weather conditions, pandemic outbreaks, boycotts and geo-political events; |
| the incurrence of material uninsured losses or excessive insurance costs; |
| our failure to maintain effective internal controls; and |
| other factors discussed in other reports or filings filed by us with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended January 28, 2012. |
12
Our Business
We operate on a fiscal year calendar widely used by the retail industry that results in a given fiscal year consisting of a 52- or 53-week period ending on the Saturday closest to January 31 of the following year. For example, references to fiscal year 2012 refer to the 53 week period ended January 28, 2012.
rue21 is a fast growing specialty apparel retailer offering the newest fashion trends for girls and guys at a great value. Although many of our customers are teenagers, we believe our merchandise appeals to anyone who wants to look or feel 21. Our product offerings fall into three categories: girls apparel; guys apparel and accessories; and girls accessories or our rue21 etc! category. As of April 28, 2012, we operated 795 stores in 46 states.
Performance Metrics
In order to monitor the Companys success, the Companys management monitors certain key performance metrics, including:
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 sixteenth 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 of 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 Quarterly Report on Form 10-Q 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.
Measuring the change in year-over-year comparable store sales allows us to evaluate how our store base is performing. Various factors affect comparable store sales, including:
| consumer preferences, buying trends and overall economic trends; |
| our ability to identify and respond effectively to fashion trends and customer preferences; |
| competition; |
| changes in our merchandise mix; |
| pricing; |
| the timing of our releases of new merchandise and promotional events; |
| the level of 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 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.
13
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.
Selling, General and Administrative Expense
Selling, general and administrative expense includes administration, share-based compensation and store expenses, but excludes store occupancy costs and freight to stores. These expenses do not generally vary proportionately 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. We expect that our selling, general and administrative expense will increase in future periods due to our continuing growth.
Selected First Quarter Highlights:
Highlights of our financial performance for the first quarter of fiscal year 2012 include the following:
| Net sales increased 18.9% to $205.6 million in the first quarter of 2012, compared to $172.9 million in the first quarter of 2011. Comparable store sales increased 1.7% in the first quarter of 2012 on top of an increase of 5.2% in the first quarter of 2011. |
| Selling general and administrative expenses were flat at 26.2% for the first quarter of 2012 compared to first quarter of 2011. |
| Net income increased 20.6% to $11.6 million in the first quarter of 2012 from $9.6 million in the first quarter of 2011. |
Results of Operations
The following tables summarize key components of our results of operations for the periods indicated, both in dollars and as a percentage of net sales:
14
Thirteen weeks ended | ||||||||
April 28, 2012 |
April 30, 2011 |
|||||||
(Unaudited) | ||||||||
(in thousands, except operating data) |
||||||||
Net sales |
$ | 205,615 | $ | 172,875 | ||||
Cost of goods sold |
125,934 | 105,629 | ||||||
|
|
|
|
|||||
Gross profit |
79,681 | 67,246 | ||||||
Selling, general and administrative expenses |
53,796 | 45,373 | ||||||
Depreciation and amortization expense |
7,528 | 6,103 | ||||||
|
|
|
|
|||||
Income from operations |
18,357 | 15,770 | ||||||
Interest income, net |
(30 | ) | (22 | ) | ||||
|
|
|
|
|||||
Income before income taxes |
18,387 | 15,792 | ||||||
Provision for income taxes |
6,785 | 6,173 | ||||||
|
|
|
|
|||||
Net income |
$ | 11,602 | $ | 9,619 | ||||
|
|
|
|
|||||
Net income per common share |
||||||||
Basic |
0.47 | 0.39 | ||||||
Diluted |
0.46 | 0.38 | ||||||
Weighted average common shares outstanding |
||||||||
Basic |
24,480 | 24,383 | ||||||
Diluted |
25,119 | 25,063 | ||||||
Net sales |
100.0 | % | 100.0 | % | ||||
Cost of goods sold |
61.2 | % | 61.1 | % | ||||
|
|
|
|
|||||
Gross margin |
38.8 | % | 38.9 | % | ||||
Selling, general and administrative expenses |
26.2 | % | 26.2 | % | ||||
Depreciation and amortization expense |
3.7 | % | 3.5 | % | ||||
|
|
|
|
|||||
Income from operations |
8.9 | % | 9.1 | % | ||||
Interest income, net |
0.0 | % | 0.0 | % | ||||
|
|
|
|
|||||
Income before income taxes |
8.9 | % | 9.1 | % | ||||
Provision for income taxes |
3.3 | % | 3.6 | % | ||||
|
|
|
|
|||||
Net income |
5.6 | % | 5.6 | % | ||||
|
|
|
|
|||||
Effective Tax Rate |
36.9 | % | 39.1 | % | ||||
Operating Data (unaudited) |
||||||||
Number of stores open at the end of the period |
795 | 677 | ||||||
Comparable store sales change |
1.7 | % | 5.2 | % |
15
The approximate percentage of our net sales derived from our product categories, based on our internal merchandising system, is as follows:
Thirteen weeks ended | ||||||||
April 28, 2012 |
April 30, 2011 |
|||||||
Girls |
||||||||
Apparel |
58.3 | % | 58.6 | % | ||||
Accessories |
24.5 | % | 24.9 | % | ||||
Guys Apparel and Accessories |
17.2 | % | 16.5 | % | ||||
|
|
|
|
|||||
Total |
100.0 | % | 100.0 | % | ||||
|
|
|
|
First Quarter of 2012 Compared to First Quarter of 2011
Net Sales
During the first quarter of 2012, our net sales increased 18.9%, or $32.7 million, to $205.6 million as compared to $172.9 million in the first quarter of 2011. This increase in net sales was due to an approximate 15% increase in the number of transactions, driven by new store openings during the first quarter of 2012. Net sales also increased primarily due to an increase of approximately 4% in the average dollar value of transactions. The average dollar value of transactions increased due to an increase in average unit retail offset by a slight decrease in units per transaction. During the first quarter of 2012, we opened 40 new stores compared to 39 new stores in the first quarter of 2011. Our comparable store sales increased 1.7% in the first quarter of 2012 compared to an increase of 5.2% in the first quarter of 2011. There were 635 comparable stores and 160 non-comparable stores open at April 28, 2012 compared to 533 and 144, respectively, at April 30, 2011.
During the first quarter of 2012, net sales from the girls apparel, girls accessories and guys apparel and accessories categories grew by approximately 18%, 17% and 23%, respectively, as compared to the first quarter of 2011.
Gross Profit
Gross profit increased 18.5%, or $12.4 million, in the first quarter of 2012 to $79.7 million as compared to $67.2 million in the first quarter of 2011. Gross margin decreased 10 basis points to 38.8% for the first quarter of 2012 from 38.9% for the first quarter of 2011. Merchandise margin for the first quarter of 2012 was flat as a percentage of sales as compared to first quarter of 2011. This decrease in gross margin was attributable to increased store occupancy and distribution center costs related to our recent infrastructure expansion.
Selling, General and Administrative Expense
Selling, general and administrative expense increased 18.6%, or $8.4 million, to $53.8 million in the first quarter of 2012 as compared to $45.4 million in the first quarter of 2011. As a percentage of net sales, selling, general and administrative expense was flat at 26.2% in the first quarter of 2012 and the first quarter of 2011.
Store operating expenses increased by $6.3 million in the first quarter of 2012 as compared to the first quarter of 2011 due primarily to the operation of 795 stores as of April 28, 2012 compared to the operation of 677 stores as of April 30, 2011. As a percentage of net sales, store operating expenses was flat at 19.4% for the first quarter of 2012 and the first quarter of 2011.
Administrative and general expense was also flat at 6.8% as a percentage of net sales in the first quarter of 2012 and the first quarter of 2011. Lower administrative salary expense as a percent to sales were offset by higher stock compensation expense.
Depreciation and Amortization Expense
Depreciation and amortization expense increased by $1.4 million to $7.5 million in the first quarter of 2012 as compared to $6.1 million in the first quarter of 2011. Depreciation and amortization expense increased as a percentage of net sales to 3.7% in the first quarter of 2012 as compared to 3.5% in the first quarter of 2011. This increase was driven by capital expenditures relating to new store openings.
16
Provision for Income Taxes
The provision for income taxes increased $0.6 million to $6.8 million in the first quarter of 2012 as compared to $6.2 million in the first quarter of 2011. This increase was due primarily to the $2.6 million increase in pre-tax income. The effective tax rates were 36.9% and 39.1% for the first quarter of 2012 and 2011, respectively. The lower effective income tax rate for the first quarter of 2012 was primarily due to corporate restructuring and events relating to higher deductible permanent items over the prior year.
Net Income
Net income increased 20.6%, or $2.0 million, to $11.6 million for the first quarter of 2012 as compared to $9.6 million in the first quarter of 2011. This increase was due to the factors discussed above.
Liquidity and Capital Resources
We believe that internally generated funds, current cash on hand, and available borrowings under our existing credit facility will be adequate to meet foreseeable liquidity needs. Our primary sources of liquidity are cash flows from operations and availability under our senior secured credit facility. Our primary cash needs are for capital expenditures in connection with opening new stores and converting existing stores to the rue21 etc! format, including the additional working capital required for the related increase in merchandise inventories. Cash is also required for investment in information technology and distribution facility enhancements 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 operations are seasonal in nature and consist of two principal selling seasons: Spring (the first and second quarters) and Fall (the third and fourth quarters). Generally, our highest sales volume occurs in the fourth quarter, which includes the holiday selling season. Accordingly, cash requirements are highest in the third quarter as our inventories build in advance of the holiday season. In addition, our quarterly results can be affected by the timing of new store openings and store closings, the amount of sales contributed by new and existing stores and the timing of certain holidays.
As of April 28, 2012, we had cash, cash equivalents, and short term investments totaling $81.8 million. Our cash and cash equivalents consist of cash on deposit, credit and debit card transactions and investments with a maturity of 90 days or less. Our cash, cash equivalents and short term investments balance at April 28, 2012 increased by $9.9 million from $72.0 million at January 28, 2012. Components of this change in cash for the first quarter of 2012, as well as for change in cash for the first quarter of 2011, are provided below in more detail.
A summary of operating, investing and financing activities are shown in the following table:
Thirteen weeks ended | ||||||||
April 28, 2012 |
April 30, 2011 |
|||||||
(in thousands) | ||||||||
Provided by operating activities |
$ | 26,083 | $ | 18,179 | ||||
Used for investing activities |
(16,422 | ) | (12,974 | ) | ||||
Provided by for financing activities |
224 | 271 | ||||||
|
|
|
|
|||||
Increase in cash and cash equivalents |
$ | 9,885 | $ | 5,476 | ||||
|
|
|
|
17
Operating Activities
Operating activities consist primarily of net income adjusted for non-cash items, including depreciation and amortization, deferred taxes, the effect of working capital changes and tenant allowances received from landlords.
Thirteen weeks ended | ||||||||
April 28, 2012 |
April 30, 2011 |
|||||||
(in thousands) | ||||||||
Net income |
$ | 11,602 | $ | 9,619 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
7,528 | 6,103 | ||||||
Deferred taxes |
(5,004 | ) | (2,643 | ) | ||||
Stock-based compensation |
1,938 | 800 | ||||||
Merchandise inventory |
(756 | ) | (9,579 | ) | ||||
Accounts payable |
407 | 8,164 | ||||||
Accrued income and franchise taxes |
9,696 | 6,375 | ||||||
Other working capital components |
695 | (741 | ) | |||||
All other |
(23 | ) | 81 | |||||
|
|
|
|
|||||
Net cash provided by operating activities |
$ | 26,083 | $ | 18,179 | ||||
|
|
|
|
Net cash provided by operating activities was $26.1 million and $18.2 million for the first quarter of 2012 and the first quarter of 2011, respectively. The increase of $7.9 million in the first quarter of 2012 as compared to the first quarter of 2011 was primarily due to reduced growth in merchandise inventory ($8.8 million) and increased income and franchise taxes payable ($3.3 million), offset by slower growth in accounts payable ($7.8 million). Depreciation and amortization increased $1.4 million and stock-based compensation increased $1.1 million.
Investing Activities
Investing activities consist principally in of capital expenditures for new and converted stores.
Thirteen weeks ended | ||||||||
April 28, 2012 |
April 30, 2011 |
|||||||
(in thousands) | ||||||||
Capital expenditures, net of tenant allowances |
$ | (10,334 | ) | $ | (7,187 | ) | ||
Tenant allowances |
(6,088 | ) | (5,787 | ) | ||||
|
|
|
|
|||||
Net cash used for investing activities |
$ | (16,422 | ) | $ | (12,974 | ) | ||
|
|
|
|
For the first quarter of 2012 capital expenditures increased $3.4 million to $16.4 million as compared to $13.0 million in the first quarter of 2011. During the first quarter of 2012, we opened 40 new stores and converted 7 existing stores as compared to 39 new stores and 12 store conversions in the first quarter of 2011, respectively. Capital expenditures, net of tenant allowances, for the new stores and conversions of existing stores increased $0.6 million to $5.6 million during the first quarter of 2012 as compared to $5.0 million in the comparable prior year period. Capital expenditures for store lighting fixtures increased $1.1 million during the first quarter of 2012 as compared to the first quarter of 2011. Additionally, capital expenditures for information technology increased $1.0 million to support the Companys expansion. The Company expects total capital expenditures, net of tenant allowances, for fiscal year 2012 to be approximately $38.0 million to $40.0 million.
18
Financing Activities
Financing activities consist principally of proceeds from the exercise of employee stock options and excess tax benefits from stock- based award activities. Net cash of $0.2 million was provided by financing activities in the first quarter of 2012 compared to $0.3 million for the first quarter of 2011.
Thirteen weeks ended | ||||||||
April 28, 2012 |
April 30, 2011 |
|||||||
(in thousands) | ||||||||
Proceeds from stock options exercised |
$ | 127 | $ | 55 | ||||
Excess tax benefits from stock-based award activities |
97 | 216 | ||||||
|
|
|
|
|||||
Net cash provided by financing activities |
$ | 224 | $ | 271 | ||||
|
|
|
|
Senior Secured Credit Facility
Effective April 10, 2008, we established a five-year $60.0 million senior secured credit facility with Bank of America, N.A., which was amended on November 24, 2009. Key provisions of the amendment include an increase in the borrowing ceiling to $85 million from $60 million, which is further expandable at our option in increments of $5 million up to a maximum of $100 million under certain defined conditions. On November 18, 2011 a second amendment was executed. The key provision of the second amendment allows the Company to provide guarantees to third party lenders in connection with purchase orders in the ordinary course of business if such guarantees are considered necessary by the Company. Interest accrues at the higher of the Federal Funds rate plus .50%, the prime rate or the adjusted LIBOR rate plus 1.00% plus the applicable margin which ranges from 1.25% to 3.00%. Availability under our senior secured credit facility is collateralized by a first priority interest in all of our assets. There were no borrowings as of April 28, 2012 and April 30, 2011, under the senior secured credit facility.
Our senior secured credit facility includes a fixed charge covenant applicable only if net availability falls below a 10% threshold. We are in compliance with all covenants under our senior secured credit facility as of April 28, 2012 and expect to remain in compliance for the next twelve months.
Off Balance Sheet Arrangements
We are not a party to any off balance sheet arrangements.
Contractual Obligations
There have been no significant changes to our contractual obligations and commercial commitments as disclosed in our Annual Report on Form 10-K for the fiscal year ended January 28, 2012, other than those which occur in the normal course of business.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America requires management to adopt accounting policies and make significant judgments and estimates to develop
19
amounts reflected and disclosed in the consolidated financial statements. In many cases, there are alternative policies or estimation techniques that could be used. We maintain a process to review the application of our accounting policies and to evaluate the appropriateness of the many estimates that are required to prepare the consolidated financial statements. There have been no significant changes to our critical accounting policies and estimates as discussed in our Annual Report on Form 10-K for the fiscal year ended January 28, 2012.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes to the quantitative and qualitative information concerning our market risk since the end of the most recent fiscal year as disclosed in our Annual Report on Form 10-K for the fiscal year ended January 28, 2012. For further information, see Item 7A of the Companys Annual Report on Form 10-K for the fiscal year ended January 28, 2012.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management has evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures, as defined in Rule 13(a)-15(e), as of the end of the period covered by this Quarterly Report on Form 10-Q pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934 (the Exchange Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q are effective at a reasonable assurance level in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures will prevent or detect all error and all fraud. While our disclosure controls and procedures are designed to provide reasonable assurance of their effectiveness, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
Changes in Internal Control over Financial Reporting
There was no change to our internal control over financial reporting during the first quarter of fiscal year 2012 that has materially affected, or that is reasonably likely to materially affect, our internal control over financial reporting.
We are subject to various proceedings, lawsuits, disputes, and claims arising in the ordinary course of our business. Many of these actions raise complex factual and legal issues and are subject to uncertainties. Actions filed against us from time to time include commercial, intellectual property, customer, and employment actions, including class action lawsuits. The plaintiffs in some actions seek unspecified damages or injunctive relief, or both. Actions are in various procedural stages, and some are covered in part by insurance. We cannot predict with assurance the outcome of actions brought against us. Accordingly, adverse developments, settlements, or resolutions may occur and negatively impact income in the quarter of such development, settlement, or resolution. If a potential loss arising from these lawsuits, claims and pending actions is probable and reasonably estimable, we record the estimated liability based on circumstances and assumptions existing at the time.
There have been no significant changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the fiscal year ended January 28, 2012.
Item 4. Mine Safety Disclosures
Not applicable.
20
10.1 | Form of Performance Share Unit Agreement under the 2009 Omnibus Incentive Plan, incorporated by reference to Exhibit 10.1 to Registrants Form 8-K filed on March 15, 2012. | |
31.1* | Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer of rue21, inc. (Section 302 of the Sarbanes-Oxley Act of 2002) | |
31.2* | Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer of rue21, inc. (Section 302 of the Sarbanes-Oxley Act of 2002) | |
32.1** | Certification of the Chief Executive Officer of rue21, inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
32.2** | Certification of the Chief Financial Officer of rue21, inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
101*** | Interactive Data File |
* | Filed herewith |
** | Furnished herewith |
*** | Pursuant to Rule 406T of SEC Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under these Sections. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
rue21, inc. | ||||||
Date: June 1, 2012 | By | /s/ Robert Fisch | ||||
Robert Fisch Chairman and Chief Executive Officer | ||||||
Date: June 1, 2012 | By | /s/ Keith McDonough | ||||
Keith McDonough Senior Vice President and Chief Financial Officer |
21
Exhibit 31.1
CERTIFICATIONS
I, Robert Fisch, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of rue21, inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, 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 registrants internal control over financial reporting. |
/s/ Robert Fisch | ||
Robert Fisch President and Chief Executive Officer (Principal Executive Officer) June 1, 2012 |
Exhibit 31.2
CERTIFICATIONS
I, Keith McDonough, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of rue21, inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, 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 registrants internal control over financial reporting. |
/s/ Keith McDonough | ||
Keith McDonough Senior Vice President and Chief Financial Officer (Principal Financial Officer) June 1, 2012 |
Exhibit 32.1
Certification of the Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of rue21, inc. (the Registrant) on Form 10-Q for the period ended April 28, 2012 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Robert Fisch, President and Chief Executive Officer of the Registrant, certify to the best of my knowledge, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the 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 Registrant.
/s/ Robert Fisch |
Robert Fisch President and Chief Executive Officer (Principal Executive Officer) June 1, 2012 |
Exhibit 32.2
Certification of the Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of rue21, inc. (the Registrant) on Form 10-Q for the period ended April 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 to the best of my knowledge, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the 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 Registrant.
/s/ Keith McDonough |
Keith McDonough Senior Vice President and Chief Financial Officer (Principal Financial Officer) June 1, 2012 |
Stock-Based Compensation
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Apr. 28, 2012
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Stock-Based Compensation |
NOTE 4 — Stock-Based Compensation In November 2009, the Company adopted the 2009 Omnibus Incentive Plan (the 2009 Plan) in connection with the Company’s initial public offering, pursuant to which key employees, officers, and directors shall be eligible to receive grants of stock options, stock appreciation rights, restricted stock, restricted stock units or performance share units to purchase or receive, as applicable, up to an aggregate of 3,626,000 shares of common stock based on eligibility, vesting, and performance standards established by the board of directors. Stock options granted are generally exercisable ratably over three or four years, subject to certain employment terms and conditions. The stock options generally expire ten years from the date of issuance. Effective May 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 the 2003 Plan based on eligibility, vesting, and performance standards established by the board of directors. Upon adopting the 2009 Plan, the Company discontinued use of the 2003 Plan and no further equity awards have been or will be made under the 2003 Plan.
The Company recognized $1.9 million in compensation expense related to stock options during the first quarter of 2012 and $0.8 million in compensation expense related to stock options for the first quarter of 2011, respectively. The following table represents stock option activity during the first quarter of 2012.
As of April 28, 2012, the Company had 2,403,096 shares available for stock grants. The weighted average fair value of stock options at the grant date was $13.64 during the first quarter of 2012 and $16.13 for the first quarter 2011. The intrinsic value of options exercised was $0.3 million during the first quarter of 2012 and $0.4 million for the first quarter of 2011. All outstanding vested options are currently exercisable as of April 28, 2012. The fair value of stock options was estimated at the date of grant using a Black-Scholes option pricing model with the following range of assumptions:
As of April 28, 2012, there was $11.2 million of unrecognized compensation expense related to non-vested stock option awards that is expected to be recognized over a weighted-average period of 1.19 years. The total fair value of shares vested during the first quarter of 2012 was $1.7 million and $1.6 million for the first quarter of 2011.
Restricted Stock Units Time-based restricted stock unit awards vest generally over three years. Performance-based stock unit awards generally vest over three years if the performance goal is achieved in the first year period. The level of goal achievement, if any, will determine the number of shares that may be received. The following table summarizes information regarding non-vested outstanding restricted stock units as of April 28, 2012: Restricted Stock Grants
As of April 28, 2012, there was $14.3 million of unrecognized compensation expense related to non-vested restricted stock unit awards that is expected to be recognized over a weighted-average period of 1.62 years. There was no material value for the total grant date fair value of shares vested during the first quarter of 2012 and first quarter of 2011.
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