Value Fashion Retailer rue21 to Debut IPO This Week

Nov.11.09 | About: Rue21 Inc (RUE)

Rue21 (NASDAQ:RUE), a specialty teen apparel retailer with 500 stores in 43 states, is expected to go public this week. According to Renaissance Capital:

After emerging from bankruptcy in 2002 with a new management team, the firm has doubled its store base in the last three years and has averaged 8% same-store sales growth over the last five quarters.

Business Overview (from prospectus)

rue21 is a fast growing specialty apparel retailer offering the newest fashion trends for girls and guys at value prices. We operate over 500 stores in 43 states. Our merchandise is designed to appeal to 11 to 17 year olds who aspire to be “21” and adults who want to look and feel “21”. We react quickly to market trends and our daily shipments to our stores ensure there is always new merchandise for our customers to discover. In addition, we offer our own brands, such as rue21 etc!, Carbon, tarea and rueKicks, to create merchandise excitement and differentiation in our stores. The energy in our stores and our focus on customer service, combined with our great value products, keep our customers returning to us. Through viral marketing and our interactive website, we continue to build a rueCommunity with a loyal customer base that will drive our growth into the future. The company and customer culture we have created invoke only one simple thought in the minds of most... Do you rue? I do!

Offering: 6.8 million shares at $16 - $18 per share. Net proceeds of approximately $22.1 million will be used to repay debt, for working capital and general corporate purposes.

Lead Underwriters: BofA Merrill Lynch (NYSE:BAC), Goldman Sachs (NYSE:GS), J.P. Morgan (NYSE:JPM)

Financial Highlights:

Net sales increased 33.3%, or $58.3 million, to $233.1 million for the twenty-six weeks ended August 1, 2009 from $174.8 million for the twenty-six weeks ended August 2, 2008... Comparable store sales increased 4.1% for the twenty-six weeks ended August 1, 2009 compared to a decrease of 2.0% for the twenty-six weeks ended August 2, 2008... Gross profit increased 38.3%, or $23.0 million, in the twenty-six weeks ended August 1, 2009 to $82.9 million from $59.9 million in the twenty-six weeks ended August 2, 2008... Selling, general and administrative expense increased 34.9%, or $15.8 million, to $61.1 million in the twenty-six weeks ended August 1, 2009 from $45.3 million for the twenty-six weeks ended August 2, 2008... Net income increased 61.4%, or $3.2 million, to $8.3 million for the twenty-six weeks ended August 1, 2009 from $5.2 million for the twenty-six weeks ended August 2, 2008.

Competition:

The junior and young men’s specialty apparel landscape is highly competitive in large markets, which we define as communities with populations in excess of 200,000 people. We believe we are able to operate successfully in these markets given our distinctive combination of fashion and value. In large markets, we tend to position ourselves adjacent to other value retailers in strip centers or outlet centers. This provides the possibility of significant customer traffic and increased potential for sales, as most junior and young men’s specialty apparel retailers, including Aéropostale, American Eagle Outfitters (NYSE:AEO), Charlotte Russe, Forever 21, the Gap (NYSE:GPS), J. Crew (JCG), Metropark, Old Navy and Wet Seal (WTSLA), choose to position themselves in the more dominant regional malls. We recognize that some of the specialty apparel retailers with whom we compete also successfully offer a personalized shopping experience that could appeal to our target customers and that existing and new competitors may seek to emulate facets of our business strategy and in-store experience. Further, we may face new competitors and increased competition from existing competitors as we expand into new markets and increase our presence in existing markets. Competitive forces and pressures may intensify as our presence in the retail marketplace grows.

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