Rue21 CEO Discusses Q3 2010 Results - Earnings Call Transcript
rue21, inc. (RUE)
Q3 2010 Earnings Call Transcript
December 1, 2010 4:30 pm ET
Executives
Joe Teklits - IR
Bob Fisch - President and CEO
Keith McDonough - CFO
Kim Reynolds - SVP and General Merchandise Manager
Analysts
Paul Alexander - Bank of America
Janet Kloppenburg - JJK Research
Paul Lejuez - Nomura Securities
Sean Naughton - Piper Jaffray
Michelle Tan - Goldman Sachs
Presentation
Operator
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Good day ladies and gentlemen and welcome to the rue21 third quarter 2010 earnings conference. (Operator Instructions) At this time, I would like to turn the call over to Mr. Joe Teklits.
Joe Teklits
Thanks very much. Good afternoon, everybody. Thanks for joining us again for rue21's third quarter 2010 conference call. Hosting today's call will be Bob Fisch, President and Chief Executive Officer. And after management has made its formal remarks, we will open the call to questions.
As you are aware, some of the statements made on the call during the prepared remarks and in response to your questions may constitute forward-looking statements and are made pursuant and within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to both known and unknown risks and uncertainties and could cause actual results to differ materially from such statements.
Those risks and uncertainties are described in the company's annual report on Form 10-K filed on March 31 of 2010. Investors should not assume that the statements made during the conference call will remain operative at a later time, and rue21 undertakes no obligation to update any information discussed on this call.
And with that, I will turn the call over to Bob Fisch.
Bob Fisch
Thank you, Joe. And thank you, everyone, for joining us for our third quarter conference call. Joining me today on the call is our CFO, Keith McDonough, and our Senior Vice President and General Merchandise Manager, Kim Reynolds.
We are very pleased with the results for both the third quarter and fiscal 2010 year-to-date. We have been public for just a short period of time, a little over a year now. We have achieved over eight-and-a-half years of consistent earnings increases. We do despite staying true to our core strategies. One, delivering fashion at a great value to our customers; two, sales growth that is driven primarily by our very productive new store openings and square footage growth; and three, a flexible sourcing model and strong merchandise mix of girls, guys and accessories that allows us to drive margin growth.
I'm very happy to say that our third quarter sales increased approximately 20%. We achieved a comp store sales increase of 1.8% on top of the 13.5% increase in comp store sales for the same period last year. Also significant gross margin increased from the third quarter of fiscal 2009 with a 60 basis point improvement in merchandise margins over the same period last year.
During the third quarter, we were able to execute our normal value strategy in what was a very promotional environment, because we did not overly promote at the start of the back-to-school season in July. We were able to set the tone in the beginning of the third quarter, with regular value prices and promote accordingly to plan to make the most impact and drive sales.
We always want to focus on profit and not hurt our business in the long term just for the purpose of putting up short-term comp gains. And as you have seen from our sales trends this year our same-store sales, while very important are not the primary driver of our earnings growth and also not tied to just how well we performed a year ago. We write our business with short lead times and a focus on speed to market, so our same-store sales are mostly driven by available trends and how well our merchandising team takes advantages of those trends.
I think it is important now that I address the subject of products that caused pressures that could affect all retailers next year, including rue. In addition to our flexible sourcing model, we have many advantages that we believe will help us offset any cost pressures and allow us to continue to deliver margin growth.
First, our etc! accessories business accounts now for almost 25% of our sales year-to-date. This is a high-margin business and we do not believe it will be affected by increases in cotton cost to the same degree as apparel. We are continuing to aggressively go after this growth accessory business, in addition to a successful line of guys accessories offered under our cotton brand.
As we convert more stores to the etc! format, we not only drive square footage growth, but are able to take advantage of a higher margin accessory categories. Second, our focus on fashion at competitive, opening price points allows Rue to drive sales without relying on huge promotions. While we certainly can, and we do promote on key items, in fashion, our good, better, best merchandise strategy is working well and we found no price resistance when we offer fashion items that our customer loves.
As Kim will tell you, one of our best-selling items this fall has been a guy studded screen tee for $24.99.
Third, to improve margins, we are focused on improving our business processes and have added management talent to our planning and allocation team to accomplish our initiatives. We have several programs underway right now that will allow us to keep improving our ability to flow the right product and categories to the right stores and better allocate inventory to each store by classification and increase our gross margin.
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