rue21, Inc. (RUE)

Q1 2011 Earnings Call

May 26, 2011 4:30 pm ET

Executives

Melissa Mackay - IR, ICR

Bob Fisch - President and CEO

Keith McDonough - CFO

Kim Reynolds - Chief Merchandise Officer

Bob Thomson - SVP, Real Estate

Analysts

Anna Andreeva - JPMorgan

Sean Naughton - Piper Jaffray

Michelle Tan - Goldman Sachs

Lorraine Hutchinson - Bank of America-Merrill Lynch

Paul Lejuez - Nomura

Adrienne Tennant - Janney Capital Markets

Stacy Pak - Barclays Capital

Jeff Black - Citi

Liz Dunn - FBR Capital Markets

Presentation

Operator

Compare to:
Previous Statements by RUE
» rue21 CEO Discusses Q4 2010 Results - Earnings Call Transcript
» rue21 CEO Discusses Q3 2010 Results - Earnings Call Transcript
» rue21 CEO Discusses Q2 2010 Results - Earnings Call Transcript

Good day and welcome to the rue21 first quarter 2011 earnings results conference call. At this time, I would like to turn the conference over to Melissa Mackay of ICR.

Melissa Mackay

Good afternoon and thank you for joining us for rue21's first quarter 2011 conference call. Joining me today is Bob Fisch, President and Chief Executive Officer; Keith McDonough, Chief Financial Officer; Kim Reynolds, Chief Merchandise Officer; and Bob Thomson, Senior Vice President of Real Estate.

Before we begin, I would like to remind everyone that remarks made by management during this call will contain forward-looking statements about the company's future financial performance and plans. There are risks and uncertainties that could cause the actual results and implementation of the company's plans to vary materially from those in the forward-looking statements. These risks are referenced in today's press release as well as in the company's fiscal 2010 Form 10-K. Those documents can also be found in the Investor Relations section on the company's website at rue21.com.

All information discussed on the call is as of today, May 26, 2011. rue21 undertakes no duty to update its information to reflect future events or circumstances.

And now, I would like to turn the call over to Bob.

Bob Fisch

Good afternoon every one. On the call with me as usual is Keith McDonough, our CFO; Kim Reynolds, our Head Merchant. And joining us today for the first time is Bob Thomson, our Senior Vice President of Real Estate.

As anticipated during our last conference call in March, we started 2011 with a very good momentum. Our first quarter results were driven by highly productive new stores, followed mid-single-digit comp growth, merchandise margin improvement on top of record margins last year and good expense leveraging, providing nicely balanced drivers to our top and bottomline growth. This is the kind of quarter we strive to produce and that we are consistent in delivering.

Keith will go over detailed financials with you later on the call. But some highlights of our financial performance for the quarter were as follows.

Net sales increased 25.5% to $179 million. Comp sales increased 5.2% on top of the 7.7% increase in the first quarter of fiscal 2010. Gross margin increased 100 basis points on top of a record gross margin a year ago. Our SG&A leveraged by 90 basis points. And finally, operating income increased to 9.1% from 7.1% in the first quarter of fiscal 2010.

There were a couple of points that contributed to our success this past quarter and that I feel very confident about looking forward for the future.

First, the strength of our real estate strategy. I'm going to have Bob Thomson speak to you about this in a minute or so. The strong performance from our new stores isn't by accident. We have thought a lot since going public about a flexible real estate strategy. We have a very large group of store locations to choose from and we are selecting our new stores very carefully and ensuring that we are in the right communities that (starve) for the fashion and value that we deliver.

The point we want to make clear is that we are also in the best possible shopping centers in each community whether it is a strip center, an outlook center or a regional mall. We get competitive rents because of our flexible real estate strategy and the relationships with landlords that we've built over the years as a growing company. And we can lock in at these great locations at sharp occupancy costs for the next 10 years.

The second point I'm feeling confident about is our ability to drive our business with our everyday great value. One thing we've all heard a lot about this quarter from some of our retail peers was the need to promote because of the tough macroeconomic conditions like rising fuel and food prices. But at Rue, we continue to believe, that if you are offer a great fashion and value everyday, you do not need to overly promote to get the business.

As an example, we kept our best denim shorts at full price, $19.99, for the entire quarter. It is possible that we could have sold more units at a promotional price, but it would not have been the right thing to do for the business. And as a result of our value strategy, our selling average unit retail for the quarter was up approximately 8%.

We are focused on building our brand for the future and we want people to come to rue21 knowing they will get great deals and fashion at a great value at our regular prices and not to see what is being put on sale that day versus the day before.

And the third point that I'm confident about is the strength of our management team and our initiatives for future growth. My management team is experienced. We have been in this business a long time together. We take a prudent approach to the business. We are realistic about our opportunities and we have delivered what we say we are going to achieve.

Read the rest of this transcript for free on seekingalpha.com