Rue21's CEO Discusses Q4 2011 Results - Earnings Call Transcript

rue21, Inc. (RUE)

Q4 2011 Earnings Call

March 14, 2012 - 4:30 p.m. ET

Executives

Robert N. Fisch – President and Chief Executive Officer

Kim A. Reynolds – Senior Vice President and General Merchandise Manager

Keith A. McDonough – Senior Vice President and Chief Financial Officer

Stacy Siegal – Vice President and General Counsel

Analysts

Brian Tunick – J.P. Morgan Securities, LLC

Michelle Tan – Goldman Sachs

Erin Murphy – Piper Jaffray

Paul Alexander – Bank of America Merrill Lynch

Stacy W. Pak – Barclays Capital, Inc.

Tracy Kogan – Nomura Securities International, Inc.

Presentation

Operator

Good day and welcome to the rue21, Inc. fiscal fourth quarter 2011 earnings results conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Stacy Siegal, Vice President and General Counsel. Please go ahead.

Stacy Siegal

Thank you. Good afternoon and welcome to rue21's conference call announcing the fiscal fourth quarter and year-end 2011 financial results. Your speakers today are Bob Fisch, Chief Executive Officer; Kim Reynolds, General Merchandise Manager; and Keith McDonough, Chief Financial Officer. Before I turn the call over to Bob, I'd like to remind you that the statements made during today's call will contain forward-looking information about our financial performance and prospects. Our actual results could differ materially from those contained in our forward-looking statements.

Risks and uncertainties that could cause our business and financial results to differ materially from those in the forward-looking statements are included in our fiscal 2010 Form 10-K and in subsequent filings we have made with the SEC, as well as in the earnings press release we issued today. These documents can also be found on the Investor Relations section of our website at rue21.com. All information discussed on this call is as of today, March 14th, 2012. Rue21 undertakes no duty to update its information to reflect future events or circumstances.

And with that said, I'll turn the call over to Bob.

Robert N. Fisch

Thank you, Stacy. Good afternoon, everyone, and welcome to our fourth quarter and year-end 2011 earnings conference call. I want to spend a few moments giving you an overview of our 2011 results, and then focus on the majority of my comments looking forward to 2012 and our priorities to deliver future growth. Then Kim will give you some insight into our merchandise strategies, and Keith will finish up with the financial results and outlook.

So to start, with a quick look back to the fourth quarter, we were very pleased to have produced net sales growth of approximately 16%, net income growth of almost 19% and earnings per share at $0.52, above our previously stated guidance, despite the warm weather and economic conditions that caused this to be an extremely promotional season for retail. To reiterate what I discussed at the ICR retail conference, from Thanksgiving through the first week of January, we achieved low single-digit comp sales despite industry pressures and unfavorable weather.

We trended up during the biggest volume period of the year by relying on our strong fashion offerings, combined with focused sales on key items to drive the business rather than sacrificing our margins by promoting too aggressively. We did see tough comp sales the last two weekends of January, which was primarily due to unseasonably warm weather across the country, which did rebound in February, which I will be discussing a little later.

The metric we are most proud of this quarter, though, was the 70 basis point increase in merchandise margin during a season when many other retailers experienced significant margin erosion. And certainly, one of the biggest accomplishments in fiscal 2011 was an increased gross margin and merchandise margin in every quarter of the year. We held the line and did not overreact when much of the industry was promoting their entire store.

We achieved our profit goals and we maintained our pricing integrity. This is a theme for rue21 that we will carry forward into 2012 and beyond. We will drive profit growth by running a regular-priced fashion business, offering every day great value, combined with impactful sales on key items. And we will not sacrifice profits for a temporary lift in comp store sales. When you look at our results for 2011 versus the industry in general, it really highlights the strength of our business model.

We opened 120 new stores with excellence and converted 38 existing stores to our larger rue21 etc! format. Above all, we are a square footage growth story, one of the few in the industry. We also have strong relationships with the [indiscernible] spenders and a sourcing model that allowed us to avoid any meaningful merchandise cost increases in 2011, despite the higher labor and raw materials costs, such as cotton and fuel that plagued our industry.

This certainly helped us stay on track and supported our margin goals. And in addition to strong fashion and key item sportswear assortments, we keep growing our etc! business which includes footwear, jewelry, lingerie, accessories and fragrance beauty. As I will discuss shortly, this merchandise diversification and growth strategy will continue to play a very important part of our success going forward.

I know that this may sound like a broken record, but the beauty of our business model is that it produces consistent earnings growth quarter after quarter. We do not have wild swings in profits or huge drops or gains each quarter. Our management team has experience and a long track record together, and we are confident that we will produce predictable results in the future just as we have for many years before we were a public company. We believe shareholders appreciate this type of consistency.

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