This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

The Deal: Continuing Slow Sales Send Rue21 Shares Down

NEW YORK ( The Deal) -- Teen apparel retailer Rue21 (RUE) filed financial data for its second quarter and other data to be supplied to potential lenders for its $990 million buyout by Apax Partners LP.

The May 23 deal offers $42.00 per share in cash for Rue21, and the shares have been down this week over concerns about the industry's performance. Rue shares traded down 25 cents Thursday to $41, at a spread of $1, or 2.4%.

The buyout goes to a vote of Rue21 shareholders Sept. 19. Apax affiliate SKM II owns about 30% and has committed to support the deal.

For the quarter ended Aug. 3, the retailer reported that sales rose 13.5% due to new stores (8%) and the increased size of single transactions (3.7%), although unit sales were lower. Net income decreased 88% compared to the same quarter in 2012 down to $1.1 million from $9.1 million. Merger-related expenses accounted for $2.4 million of the decline. Store operating expenses rose due to the increased number of outlets, and selling, general and administrative expense increased 18%. Earnings per share fell to 5 cents from 50 cents in the second quarter of 2012.

In a separate filing with the Securities and Exchange Commission, Rue21 reported as part of its debt financing activities that the soft sales patterns seen in the second quarter continued into August. "The company took a strategic approach to managing merchandise margin and inventory levels and maintained a normal promotional cadence." August same store sales were down 7.6%, total sales up 4.2%, merchandise margin improved 200 basis points and gross margin improved 40 basis points. Administrative expense for August, excluding stock compensation and merger costs, decreased 4% from August 2012.

Rue21 said in the filing that while it expects for conditions to improve for the teen retail sector into the holiday season, the company is prepared to manage the business for a prolonged period of top line weakness, if necessary. New stores opened for at least 12 months have been consistent in delivering investment returns in excess of 100%. Much of any continued comparable store sales weakness is expected to be offset by cash flows and new store profits. Rue21 said it identified approximately $3 million in expense reductions that it intends to implement during the third quarter.

The buyout has a 20-day debt marketing period beginning Sept. 3. The debt commitment letter with JPMorgan Chase & Co., Bank of America Corp. and Goldman Sachs Group Inc. provides $780 million in a $530 million senior secured term loan, a $250 million senior unsecured bridge facility and a $150 million revolving credit facility. The reverse termination fee is $62.7 million.

-- Written by Scott Stuart in New York

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
RUE $41.99 1.82%
AAPL $130.28 0.00%
FB $81.53 0.00%
GOOG $565.06 0.00%
TSLA $218.42 0.00%

Markets

DOW 18,080.14 +21.45 0.12%
S&P 500 2,117.69 +4.76 0.23%
NASDAQ 5,092.0850 +36.0220 0.71%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs