rue21's CEO Discusses Q4 2011 Results - Earnings Call Transcript

Mar.15.12 | About: Rue21 Inc (RUE)

rue21, Inc. (NASDAQ: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.

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.

Now turning to 2012, we have three main strategies that will continue to generate earnings growth that I'd like to discuss with you. One, grow square footage. Two, drive comp store sales increases. And three, continue our margin expansion. Our largest contributor to earnings growth continues to be very productive new stores. We are again committed to being a square footage growth story in 2012. We ended 2011 with 755 store locations, which included 120 opened in the year.

These new stores are on a run rate to achieve an average just under $1.1 million in their first year, which is consistent with the level at which our stores have been opening over the past few years. We are experiencing no geographic resistance, and we have expanded to 46 states. And we continue to feel confident that we have the ability to grow to 1,500 stores in the United States. We prefer to open in small and medium size markets where there are very few other fashion specialty retailers; for example, a [Marise's or a Just This] [ph].

We typically position our stores next to a Wal-Mart, Target or Kohls, or maybe even close to a T.J.Maxx or Marshalls, which operate with regular everyday great value models similar to rue21. When I meet with some investors, they also want to compare us with retailers like Aeropostale or American Eagle. But we don't have a high percentage of stores overlapping with these type of team retailers. Towns like Elko, Nevada; Gillette, Wyoming; Norfolk, Nebraska love rue21, and we love opening in these type of locations.

We plan to open 120 stores in 2012, and the majority of our locations are already identified. We will also be converting an additional 30 stores to the larger etc! format in 2012. We are already working also on our 2013 real estate plan, and again are confident with our prospects and our future success. Next, another top priority 2012, which I'm sure is near and dear to everybody's heart on this call, will be drive comp store sales increases, and do it while protecting our margins. You need to do both.

In 2011, we produced net income growth of almost 29% and our comp was relatively flat. As I just mentioned, the majority of our earnings growth has and will continue to be driven by new stores. However, we do not dismiss the importance of increasing the productivity of our comp stores, where the opportunity if represents to drive our bottom line. And we have several initiatives in place to push the pedal on comp store sales growth this coming year.

First, it starts always with merchandise. While our accessories is a category we are focusing on growing, we have plans to go after sportswear categories like dresses, where we see opportunities to really own the business and be dominant. Also, our Guys business is seeing improvement and we are very pleased with the impact of Guys assortments for spring and what it will mean for us this year. Kim will give you more color in details on fashion trends and categories that we see as strong opportunities for rue21 in 2012 at the moment.

Second, our promotional strategy in 2012 will be a comp sales driver. We did not have entire store point-of-sales events last year. So thankfully, we are not up against that pressure of that type of event having an anniversary to do it this year. We plan to drive our business in 2012, as we do every year, with great value at our starting price points and add impact with strong point-of-sale events in depth of key volume driving sales categories our customer wants throughout the year, such as denim, shorts, sandals and sundresses.

This is a particular opportunity in the second quarter. We do not plan to be more promotional overall, just to become more effective and drive the business. The third opportunity to drive comps is through renewed focus on viral marketing and revitalizing our bounce back coupon programs. We are very proud that we just hit our millionth fan on Facebook, and we continue to send frequent e-mail blasts to our customer base that we call our rue Community.

We believe that there's a real benefit to being able to communicate with our key demographic on-site such as Twitter and Facebook, and we will continue to use social media and partner with relevant artists in the entertainment industry to keep our customers excited and drive sales to our stores. Plus, this will build a platform for our e-commerce business that we intend to go live with in early 2014. And finally, operational initiatives will drive comp sales this year.

We will be looking at streamlining our in-store processes and many tasks by adding technology like mobile scanners to our stores so that our associates can focus on supreme customer service. We want our associates spending their time making each customer shopping experience special at rue, which will result in increased transactions and sales. Our third priority of 2012 is continued gross margin expansion. As I said, we are proud of what we achieved in 2011 and we feel good about margin expansion going forward.

We will continue to leverage our domestic base spender network to avoid cost increases. And inventory management, coupled with allocation and planning processes, will not only give us opportunity in sales, but also an improved full price sell-through. We have opportunities to optimize our sales by flowing the right product to the right stores at the right time with these new systems. High margin accessories will also continue to help our top and bottom line, as this continues to be an area of growth for us.

And expanding on our good, better, best merchandise assortments, such as denim, will allow us to obtain higher AURs on fashion items our customers can't find elsewhere, especially in some of our smaller communities. So in summary, we are excited about 2012 and the multiple avenues we have identified to increase square footage growth, yes, drive comp store sales, and expand our margins; all of which will allow us to achieve our profit goals that Keith will be discussing with you shortly.

We are off to a terrific start. We are pleased to say that in February, our strong spring merchandise assortments resonated well with our customers. February has historically been a strong month for rue, and once again we achieved comp sales to our guidance during the month with good selling balance of regular-priced merchandise and sale items, a great way to start off the new fiscal year. Now, I'd like to turn this call over to Kim to discuss further our exciting merchandise direction for 2012.

Kim?

Kim A. Reynolds

Thank you, Bob. As Bob mentioned, my merchant team and I are very excited with the color and the newness we are seeing so far this spring. First, looking back on the fourth quarter is the drivers included Girls and Guys woven tops, Girls dresses and activewear. Bottoms categories in both Girls and Guys were stronger over our tops categories, driven by newness in both fashion, as well as color. In etc!, we had great momentum in our fragrance and beauty categories, as well as in our footwear areas.

Guys accessories, our CARBON Elements brand, was also very strong especially in Guys footwear. Our Tarea lingerie business has been gaining traction and it's a category we're very excited about. Last year, we executed re-price on our opening price undies from $0.99 to $1.99, and our mid-priced undies from $2.99 to $3.99 in order to add more fashion, better fabrics and additional details of our assortments. Initially, this pressured our sales.

But now, almost six months later, we are getting great increases and very high gross margins, while remaining extremely competitive with well-known undies brands. The re-pricing, combined with the compelling assortment of fashion bras and lingerie sets we've added to the mix of our accessories business will add to our overall growth margins. In terms of opportunity for next year, we think we can do a better job at bringing gift items into our assortments in the latter half of the year.

This past season we felt our strongest sales was generated by our customers buying for themselves, so gift will be an area to focus on for holiday of 2012. Cold weather categories were also a jump to comp store sales in the fourth quarter. We've re-strategized these areas to incorporate a more wear-now approach to this product as an early introduction into spring to address the climate issues we experienced this past year; another fourth quarter opportunity.

Now moving into 2012, we intend to drive comps with strong merchandise assortments and strategic pricing in key items and fashion in our categories. We're very excited about the color trends in the market. Anything with bright colors has been selling, and our color bottles have performed extremely well. We also have a great position on several categories of dresses and shrugs and cardigans, body con skirts for girls, a body-hugging silhouette that is on trend right now, as well as our [outerwear] [ph] and active sportswear.

For Guys, our spring tops and shorts have been well received so far this season. In Guys accessories, our CARBON Elements brand continues to be a strong growing business and an area with little significant competition. In etc! there are also some strong trends that we capitalized on for the spring. We have been in an accessories fashion cycle, and our customers are using jewelry, handbags, belts and footwear to individualize their looks and bring [indiscernible] outfits, we believe that accessories will continue to be important for us in 2012.

Our etc! category represents over 26% of our total sales in 2011. And not only do our accessories assortments provide incremental sales and margin opportunities, they also help us to grow customer excitement about fashion trends. Finally, we're working with our printing and allocation teams to customize assortments to different climates across the United States, as well as accommodate regional fashion or size preferences.

We think that we can capture increased sales by focusing on new allocation processes that will better allow to give our customers the merchandise they love. And with that, I'll turn it over to Keith.

Keith A. McDonough

Thanks Kim. I'll review the financial details for the quarter and our year-end, and then provide comments regarding our outlook for 2012. As Bob pointed out, overall results for the quarter were [indiscernible] and we are especially satisfied to again deliver expanded margins in such a highly competitive and promotional holiday season and quarter. Due in large part to the promotional strategy that Bob discussed, we expanded gross margins by 70 basis points and overcame a slight deleveraging in SG&A expenses to produce operating margins of 9.5% as compared to 9.3% last year.

Rue delivered earnings per share above our guidance at $0.52, driven by 80.7% net income growth. Net sales were $219.9 million for the quarter, up 15.7%. Same-store sales declined 2.2%. Sales metric for the quarter included transaction growth of over 12%, AUR growth of nearly 5%, and an average dollar sales increase of over 3%. Like last quarter, the AUR increase we attribute primarily to having less reduced priced merchandise on-hand and achieving more initial price sell-through.

We opened 17 stores in the quarter versus opening 10 in the fourth quarter of 2012. We converted four stores in the quarter versus zero last year. We had 755 stores in operation at the end of the year, consisting 611 comparable stores and 144 or 19% non-comparable, versus the total store count at last year-end of 638, which included 523 comparable and 115 or 18% non-comparable. A highlight of the quarter was once again another expansion of growth margin in an extremely promotional environment.

Gross profit for the quarter increased by 18.2% to $80.4 million. And gross margin expanded by 70 basis points to 36.5%. The gross margin expansion was driven all by improved merchandise margin, offset by only 10 basis points of deleveraging of fixed costs and cost of sales. As Bob and Kim promised repeatedly in quarterly calls last year and this past spring, we have not accepted, nor had to try and pass onto our customers a cotton and labor inflation impact that most of our peer group has experienced.

Selling, general and administrative expenses increased 17.6% to $52.1 million. As a percent of sales, expenses increased by 40 basis points to 23.7% versus 23.3% last year. Stock-based comp expense contributed 30 basis points to the deleveraging, and store expenses contributed the remainder. Operating income for the fourth quarter was $21.0 million versus $17.7 million a year ago, growing by $3.2 million or 18.4%. And again, our operating margin expanded by 20 basis points in the quarter.

Tax expense was another bright spot for rue in the fourth quarter financial performance, coming in at an effective rate of 38.3% compared to 38.5% last year. The lower effective tax rate was primarily attributable to the progress being made on previous long-term planning initiatives. Finally, net income increased by 18.7% to $12.9 million for the quarter, up from $10.9 million a year ago. Fully diluted earnings per share were $0.52 versus $0.44 a year ago on a diluted share count of 25.1 million this year versus 25.0 million last year.

To review quickly our performance for the full year, sales grew above last year by 19.8% to $760.3 million, reflecting a comp increase of 0.4% and a 24% square footage increase. As in the quarter, gross margin for the year expanded by 70 basis points, which is on top of 120 basis point increase in fiscal 2010, all of which is attributable to improved merchandise margin, fixed cost margin and cost of sales were even with 2010.

Operating margin expanded by 40 basis points and operating income grew by 26.1%. Net income grew to 28.8% and net income margin increased by 30 basis points to 5.1%, which is on top of 40 basis points expansion in 2010. Highlights of the year in balance sheet include the following. Cash and cash equivalents were $72.0 million, up 44% from $50.1 million last year. Inventor was up 36% over last year and up 10% per square foot, primarily due to flowing spring merchandise to the distribution center in January, all in anticipation of the earlier Chinese New year.

Importantly, inventory was only up 3.4% in stores, and has since dropped to being just over 5% up per square foot total company as of the end of February. Accounts payable is leveraging 81% of our inventory investment at year-end, which is down just a bit from our rec rate of 85% a year ago. We have no long-term debt on the balance sheet, and our revolver facility capacity is $85 million. We have no plans to borrow and we not done so since our IPO.

Now, turning to outlook. We plan to open 120 stores in 2012, with approximately 40 stores opening in the first quarter. We are also planning 30 conversions this year, with a couple in the first quarter. We may close a handful of stores later in the year, all of which have leases that are expiring. We are planning for low single-digit comp sales in the first quarter and the full-year, and overall sales growth in the mid to high teens.

We expect gross margin for the year to increase again in 2012, but not enough to offset SG&A deleveraging related to material incremental stock comp expenses, which has a roughly $0.09 earnings per share impact in 2012. As we said when we went public, stock comp expenses will effect SG&A through 2013, after which time we expect it to level off. We expect full year net income growth of at least the same rate as operating earnings, and EPS to be in the range of $1.74 to $1.79 on a fully diluted share count of 25.4 million.

For the first quarter of 2011, we expect diluted earnings per share in the range of $0.42 to $0.44. This guidance assumes the low single-digit comp sales increase and total sales growth in the mid to high teens. This projected growth in the first quarter is on top of 5.2% comps last year and 25.5% total growth. Diluted weighted shares outstanding is approximately 25.3 million shares. That completes my prepared remarks.

I'll turn the call back over to Bob.

Robert N. Fisch

Thanks Keith. As I said earlier, our goal is to deliver consistent earnings growth quarter after quarter. In 2012, our team is dedicated to achieving revenue from comp store sales, as well as new store sales. We are very encouraged by the start of our spring season. At this point, I'd be very happy to take some questions and we'd be glad to answer them.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from Brian Tunick with J.P. Morgan.

Brian Tunick – J.P. Morgan Securities, LLC

Thanks. Good afternoon, everyone, and congrats on the gross margin performance for the year. I guess the question -- maybe two. I guess the first one is, as you think about the maturity curve, what's happening with the stores in these small markets? If you look at the flattish comps you guys have put up over the last three quarters last year, how much of that do you think is a function of the weather or you guys not participating in the promotional environment?

Because I think you guys said that your new stores opened up $1.1 million. So just curious, whether the more mature store volumes, years three and four, what are you seeing? How can we expect the maturity curve there? And then, if Keith could maybe talk about where are in the planning and allocation stages to sort of expect -- I'm sure we'll hear more at the analyst day. But just curious, where are we in the process now? And then finally, Keith, anything on the 53rd you could comment on?

Robert N. Fisch

Let me try to answer the first two out of the four or five questions. Hello, Brian.

Brian Tunick – J.P. Morgan Securities, LLC

How are you doing, Bob?

Robert N. Fisch

Very good. First of all in the environment, we're, number one, very pleased with our new stores and our stores that became comp in 2011. The stores that are two years out, three years out, four years out, five years out, it can even go six years out, are in the same line of our comp store increases. If we were flat, then we'd probably be in the same range. When we pick up 2% or 3% at times, they're in the same range. So they are not dropping off. We are having consistencies.

And in small markets, as well as middle markets, we are seeing the consistent growth. So nothing has changed. The stores that we opened up last year that are non-comp, as you saw it from our press release, our transcript, are performing well. Sales promotion-wise, we're not running less promotions than we did the year before, we're just not running more. We're being -- we tried to even in this year. We're going to become even more efficient in how we go after the promotions.

And so, even though you're not exactly mentioning that question, I think it's important to note, like for example in the second quarter, we're not going to be promoting more. We're just going to take our dollars and make sure we're more efficient in impacting some categories and to go after certain key categories of sale items, and go after the business. So that would be the answers, I think, to my part. And I think I'll leave the rest to Keith for the rest of your questions.

Keith A. McDonough

Well, I think just following-up on that, the story at rue21 continues to be consistency, Brian. It is amazing how consistent the family of stores are from the 209 family to 2003 family. And that has been true and it continues to be true. In addition, the new store family of 2011 performed just as well as the family of 2009 and 2010. And that, again, I've said this from the very beginning. That's the compelling part of the new store business model that we have.

And why it's so compelling that we continue to open at the breakneck pace that which we do open, because they're accretive and it's a self-funding business model. So why would we not. Planning and allocation systems are moving forward. As you know, I think allocation has been implemented for at least the first quarter. I think we are just dipping our toes in the functionality and the utility of those systems. I can tell you, if we walk back into the allocation department right now, we would have to tear the systems away from these allocators.

We have created a staff of analysts and have done away with data entry clerks, if you will. So it's been a great result upfront, but I think we're just beginning to stretch our legs in terms of functionality on the allocation system. The planning system is in process today. As a matter of fact, Mark Chrystal is up with MID today in the Rally Room, and they are working on that planning system. We intend to have a pilot go in September and probably go live after the holiday season like we did for the allocation system.

And finally, the 53rd week. We've look at this in a lot of different ways. As you know, it's the least profitable time of our year. it certainly has driven volume and it will drive volume in 2012. But we do not think of the immaterial impact or overall profitability for the year.

Robert N. Fisch

One thing on that also I think, Brian, is because we have so many outside centers or strip centers, as well as outlet centers, that month in January to -- right at the end of January is not strong. February become strong but not that time period. The other thing I would just mention one thing to our fourth quarter, Brian, is that -- and yes, thank you for mentioning about our margins.

But yes, we do want to increase comps. But in this case, as we looked at and as we discussed when we met with you even at the ICR conference, we felt that by not promoting the entire store, it would put us in a good position as we move into the spring season. So I am encouraged by that and I do look to see us achieve the comps as we discussed on this call.

Brian Tunick – J.P. Morgan Securities, LLC

Terrific. Thanks so much and good luck for spring.

Robert N. Fisch

Thank you, Brian.

Operator

We'll take our next question from Michelle Tan with Goldman Sachs.

Michelle Tan – Goldman Sachs

Great, thanks. Hey guys.

Robert N. Fisch

Hey, Michelle.

Michelle Tan – Goldman Sachs

So, I just wanted to dig in a little bit more on this tweak you're making to the promotional investment as we think about 2012. It sounds like you're saying you're buying into kind of key items to win promotions. Maybe if you're just buying deeper in these key items so you can have the volume to get behind some bigger promotional event.

It sounds like a somewhat different strategy than your typical kind of [indiscernible] kind of model. So I was wondering if you could help us understand how it is going to different. Whether it is relatively big change in some categories, in terms of how you buy the inventory and how you're thinking about kind of managing the risk of that inventory or the exposure a little differently.

Robert N. Fisch

No, I'm glad you brought that up because I don't want it to be confusing to you or anybody on the call. We are not changing dramatically what we're doing. Our compound events will be very effective. We just have ways that we think we can make it more efficient or look at events that not to add events but to strengthen certain events or change events. As far as the other strategy of the volume opportunity, what that really is, is that we look at the second quarter taking for example, and it's a shorter quarter.

And lest the world is so unbelievable in the greatest new fashion trends, it's very easy to get caught into, gee, what's going to excite people. We think we've got some good fashion trends. But what we also had is opportunities to be a little stronger instead of being an assortment of clearance at that time to go back and to impact buys, like sundresses, and really to have a great promotional price point of sundresses that have been great at regular price that we can promote and still have high margins.

We're not looking to promote more. I think we missed the sandal business in the July to August period last year. We'll be going back into it and having that, because that's what the customer wants. They're not ready -- back-to-school doesn't really start until August. So it's really not dramatically changing the promotions but just tweaking it to going after volume-driving business to achieve our comp and total sales.

Kim A. Reynolds

And so I think another way of explaining that also is that we've taken what's been successful for us in key items, the same promotional strategy, and really applied it to other categories within our business. that includes the body con skirts or dresses, and including nail polish. Making a statement and then driving our business in other categories, and not just in key items top.

Michelle Tan – Goldman Sachs

Okay, got it. And then so Bob, just in terms of like the 2Q strategy, you're basically saying you can go back into the market, buy these items in what's typically a clearance quarter at a pretty effective cost?

Robert N. Fisch

Our first quarter happens to be a very strong volume quarter. And that sometimes, you can go back into something, and I think you have to change it up. And I think Kim will be working on that, and probably will be discussing even more for the people who'll come to our April 18th Investor -- Analysts Day. And we'll be able to show the product and go over more of that and make it more clear for you, Michelle, and whoever else would like to. And I think that that's part of it.

And the rest of it, I think, is just being clear as Kim said in those key item strategies in the second quarter. So I see opportunity, and that's what our role is. It's that we weren't happy being flat in comp last year. I am more happy with that than I am of the fourth quarter, okay, because I think the fourth quarter was an incredibly ridiculous promotional time that I think we made some great stride and successes. So to me, I think we can do both. We can make our profit in the second quarter and pick up comp.

Michelle Tan – Goldman Sachs

Got it, thank you. That's helpful. And then, my last quick one is the inventory balance, I know it's a snapshot at quarter-end. It's a little higher than we're used to seeing. Anything unusual kind of going on there in terms of timing of deliveries or anything like that?

Robert N. Fisch

No. Really it's like Chinese New Year was two weeks earlier this year, and so, you want to position yourself right, which ended up helping us in February in our regular price merchandise. So I don't see that, and I see as ending the quarter being in very good position to where we want to be.

So I do not see anything really changing on that. This company has always had a very good control of our inventory levels. And I think that we were prudent, though, to say let's bring something and by March, we were back to almost exactly where we wanted to be.

Keith A. McDonough

Michelle, that was -- most of the delta, the increased inventory was sitting in the D.C., right. So we've got brand-new inventory waiting to go onto the stores at year-end.

Michelle Tan – Goldman Sachs

Okay, great. Thanks. It's really helpful guys.

Robert N. Fisch

Thank you, Michelle.

Operator

We'll take our next question from Erin Murphy with Piper Jaffray.

Erin Murphy – Piper Jaffray

Great. Thank you guys for taking my question, and nice job on the execution in the quarter and the year, specifically on the margin side.

Robert N. Fisch

Thank you.

Erin Murphy – Piper Jaffray

Bob, I had a couple of questions for you. It's encouraging to see the comp improve in February. Can you speak a little bit more, I think it's unusual the consistency in the performance you've had in February, given relative to your peer group. What has given you that ability to have that consistency? Is it the sourcing or the flexibility of your sourcing model, you're able to respond quickly to fashion trends that are catching? Or it's the weather it's unseasonably warmer and you can pull products forward? Or is there something else there in terms of how you flow your product into the spring?

Robert N. Fisch

Well, what's really interesting is that I've heard in the last couple of weeks, looking at the analyst write-ups that February is a small month for many retailers. And it is, I'm sure. It's not rue. It's one of the biggest. In fact, from February through June, on an average weekly basis, February is the largest month for rue. And so, it's strange and I don't really exactly have the answer to that. Sometimes there's things I have answers. And sometimes it's better that that I don't try to figure out. I just make it up.

So it's like I have to come up and say what I feel. But I think that partly what happens in that is a very strong, regular-price month for us. It's like January is sale, and then all of sudden, February's thoughts whether it's early, spring break, people getting newness, whether it's in the north, the Midwest or the south, the north and Midwest, those tank tops just like the south. And we have a very strong regular price month that goes into March too, which is good also and obviously in volume but February struck.

I think it's our change from fall to spring where we have to totally change our assortments, because it's the time of the year. You can go from second quarter into third quarter with similar fabrics and different colors. It makes you change. And I think that that is something that makes a difference in addition to the early spring break timing and our customers just come out and buy regular price.

Erin Murphy – Piper Jaffray

Okay, thank you. That's helpful. And I guess that ends in terms of a new spring trend that we're seeing right now. I know Kim, you addressed this and maybe you could speak to it a little bit more. But and this emerging color cycle we're seeing, from your history, how long have color cycles lasted?

We saw pink as a color very big back in 2003, but it was much more top-driven. This trend seems to be a lot more bottoms-drive, which could point us some longevity in it. I'm just curious from your perspective, historically, how we've seen these color cycles essentially trend.

Robert N. Fisch

You've been in the business a long time, Kim. I'm sure you can --

Kim A. Reynolds

My history on these type of color trends is really they happen like every five to seven years. And to your point, this is the first time I've seen it in the bottoms category as opposed to the top. So it's really kind of a new cycle. So I would say at least we'll see it playing out through the end of this year, and I'm a little cautious past that time.

Erin Murphy – Piper Jaffray

Okay, that's helpful. And then, just quickly on the accessories, again, with kind of 26% of your mix, could you speak to kind of where you see this as a percent of your mix longer-term, specifically as you not only capitalize and what you're seeing in the Women or the Girls side of the business, but also the opportunities that you see in the Guys side of the business? Where could this actually trend?

Robert N. Fisch

I think that we sometimes -- I believe we mentioned also that we see the next three or four years just climbing into the high 20's. So seeing 28%, 29% probably could in the range or something like that. We're not looking to hurt our junior or guys business. We just think that the explosiveness of footwear where we could be as dominant as anybody in the United States specialty retailing, the development of our Tarea lingerie, because bras and the undies are starting to become more cohesive for us where I see a good development and strengthening. And fragrance and beauty, we now have 14 exclusive fragrances, soon to be more. And I think that it's an incredible business that keeps growing. So I see that keep growing to that level.

Operator

We'll take our next question from Lorraine Hutchinson with Bank of America Merrill Lynch.

Paul Alexander – Bank of America Merrill Lynch

Hi, Paul Alexander for Lorraine. Thanks for taking the question. Can you talk a little bit about how you're managing to keep up that new door productivity? Opening as many stores as you do, it would seem there's a risk that eventually you'd be opening in worst centers and that that would trend downward.

So maybe just remind us how you go about choosing where to open stores in a given year. And then on a related note, you said you do well opening up in same centers as Wal-Mart's. And today, you talked a little about some of the other retailers you like to be near. How many Wal-Mart's are there left that you'd like to be near that you aren't already? Thanks.

Robert N. Fisch

Well, all right. So first question on the new store centers. You see I think what the misconception is sometimes is that, gee, we're not at 770 stores, how can you grow bigger. Remember, we're not just in A and B malls. There are tons of C value malls that we do really well in. And there's 2,500 opportunities of strip center locations out there that we are in right now a little over 400. So that actually when we opened up, I believe, in Norfolk, Nebraska, I think there's a 11,000 people living in that town, all right.

And there's a Wal-Mart, though, that does over $100 million. So we like to be shadowing Wal-Mart, for example, like that. And why wouldn't you. Because that means that there's a lot of young population there also. So -- and some of these centers is no more within a 100 miles. It's not the only thing we go after. And I want to also say, we're going to go after malls too, but predominantly in these value centers which are the small and middle markets.

Strips will be number one. But we see already -- Bob Thomson, our Head of Real Estate, is looking at 300 locations, already starting to think about 2013. We've already secured over 100 deals in 2012. And I think you have to look at it. Number two to that is that, yeah, I think that instead of only at us as Aeropostale and Harvester and Abercrombie, or whatever, is that a very successful company that's doing extremely is essential. That has [Marise's, Just This] [ph] and [indiscernible].

Each of them have between 800 and 1,00 stores, and each of them can still grow by 300 or 400 stores and more. So we see that there's a lot of opportunities and we house well next to those type of stores, which I think are finally getting their due to what's happening out there in industry, in addition to T.J.Maxx and Marshalls. And as far as Wal-Mart, number one, we do a little over 1% of Wal-Mart's business when we open. So it's very good measurements. It's kind of like -- it kind of happens very systematically.

And that right now, there are about 3,800 Wal-Mart's in the United States. Now obviously, we're not going to each one of them. But for an example, we're in 87 stores in Texas. Wal-Mart has 380 stores. So I'm sure we could be 150. So I'm sure that right we might be in say 60 or 70 of the Wal-Mart centers there. We probably could be in another 90 out of their total 380. So I think that we wouldn't be in each one of them but there's plenty to go around.

And that's why I'm encouraged by that, whether there is a lot of new centers coming out of the ground or not. And I believe that we could be 1,500 stores in the United States alone. And then in the next couple of years, as we discussed at ICR, go after Canada, Puerto Rico, and we'll see from there.

Paul Alexander – Bank of America Merrill Lynch

Great, thanks. And then just wanted to follow-up, I think you mentioned entering e-commerce in 2014. Can you give us a little more color on the thought process around that, or what that might look like?

Robert N. Fisch

It's in our early stages and everything. So the question was that we were looking at it to see can we try to do it at the end of 2013? Could we do it 2014? We are in the middle of finalizing right now what we want to do the business with. Who are we going -- I'm in the middle of recruiting right now for a Senior Vice President of e-com. So it's a little premature. What I'd like to do is maybe in the next couple of months, when we have the next call or we get together, maybe give a little more color on that, Paul.

Paul Alexander – Bank of America Merrill Lynch

All right, cool. Thanks.

Robert N. Fisch

Thank you.

Operator

(Operator Instructions) We'll take our next question from Stacy Pak with Barclays.

Stacy W. Pak – Barclays Capital, Inc.

Hi, thanks. I guess first just to clarify, did you say that February was above the guidance, towards the mid-single-digits, or -- okay, what did you say exactly?

Robert N. Fisch

No. I said that it would net our guidance. We are in line with our guidance in February. February, Stacy, is the month that historically we have done extremely well and have very strong increases over the last three years. And I was very happy to see that we were consistent with what our guidance was. I know that the weather is warm out there.

I know some people have bigger comps. Some people have worse comps. But to us, I measure ourselves by what we can do. And I felt that up against these strong increases, that having another increase on top of it and drawing the line of having a good balance of regular with our sale product was the right thing to do.

Stacy W. Pak – Barclays Capital, Inc.

Right. And then, I guess is it the same quarter to-date, because it's only a little bit beyond February but have the trends quarter to-date in line with the guidance?

Robert N. Fisch

Well, normally we don't even talk much about February or first month. And I thought, in this case it was right to do that. I think it's a little premature being two weeks into a quarter of the month to say anything else. And that doesn't mean it's not good or anything like that. I just think that we'll give you better color the next time we speak.

Stacy W. Pak – Barclays Capital, Inc.

Okay. And then on the inventories, I guess I have a few questions, so I'll just roll them out here. But on inventories, do you expect your inventories to be in line with sales at the end of Q1, given the shift which it really does because of Chinese New Year?

Robert N. Fisch

Yes, yes. The answer is yes to that.

Stacy W. Pak – Barclays Capital, Inc.

Okay. And then the comp metrics, could you revisit those because all I wrote down was positive but I know you did a negative too. So I wrote something down wrong there, I think. And then, the other question I have is on the etc! stores, can you just tell us what's the size of the etc! stores in 2011 relative to the rest of the base? And how have those grown like from '10, the etc! stores, or has that prototype size remained consistent?

Robert N. Fisch

I think that's a really good question, Stacy. I think in 2011 that they were a little bigger by 400 or 500 square feet to the stores in 2010 or '09, partly is because of getting incredibly opportune rent, opportunities that we were able to pay the same rent, even some 6,000 square feet or a little bigger. But I mentioned also a couple months ago at the ICR conference also that what we see for 2012 -- and it's not what we see, we've already taken care of it -- is we think that we will get the same lower rent that I'd rather stay in the etc! stores in the 5,000 square foot range and just make more profit.

It did not hurt us in profit. It's that we can make more because the bigger store can affect you a little. You might have to add more persons into the store, as far as sales associates or inventory or expenses of utilities. So I think that's going to make us -- help us even more profitable this year. And then, where there are stores that we should be 6,000 square feet, like in some of our outlet's expansion of lingerie, we'll do that because we have some stores that are just doing incredible in footwear, and the parity of business.

And you've got to give it some space. And you don't want to ever hurt your core business of juniors and guys to give up that space to build something. That's where retailers sometimes make mistake. So I think you've brought up a very good sensitive issue, and I'm very proud to say that all of our stores going forward are back to where 2010 or '09 are on those sizes. And as far as the comps, I didn't understand your question on that. I'm not sure I understand.

Keith A. McDonough

I was thinking maybe I should [indiscernible] the history of the comps in the first quarter are 5.2% last year. And the year before that, comps were 7.71%. So growth sales -- growth in both years of over 25%. So when we compare ourselves or look at ourselves versus the peer group, and we're looking at low single-digit comps and nice sales growth, we're happy with that.

Stacy W. Pak – Barclays Capital, Inc.

But that's not what I was looking. You gave the comp metrics, the AUR and all that, and yet, you reported a negative too. So I'm just thinking I wrote something down wrong because the comp metrics that I wrote down didn't get me to a negative comp. So I just wanted you to repeat the comp metrics for Q4. That's all.

Keith A. McDonough

Sure, sure. Okay, so transaction growth of 12%.

Stacy W. Pak – Barclays Capital, Inc.

Okay.

Keith A. McDonough

Right, and these are total sales that you're going to chalk out to, right, not comps, right? So transaction growth of 12% and average dollar sale increased up 3%. That's how we're getting to roughly how we're getting to the total growth of 15 to about 16%.

Stacy W. Pak – Barclays Capital, Inc.

I thought you were telling us the -- I thought you were giving the comp metric. Okay, my mistake. That's it, thanks.

Robert N. Fisch

Thank you.

Operator

We'll take our next question from Paul Lejuez with Nomura Securities.

Tracy Kogan – Nomura Securities International, Inc.

Hey, it's Tracy Kogan filling in for Paul. Two quick questions. The first is can you give us those same comp metrics for February? What was AUR and what were transactions? And then secondly, could you remind us on your CapEx expectations for F'12 and then break that out between new stores, the conversions and then IT. And is that -- is F'12 a good run rate to you for future year's CapEx or is there some major expenditure for a DC or project company?

Keith A. McDonough

No, we're not going to break out the metrics for the quarter that we're in, Tracy, we don't normally do that. And so, we will discuss that at the end of the quarter. Our expectations for 2012 CapEx is $39 million. And that's for the most part, it's the same numbers from a new store, same type of investment numbers for the new store.

We are -- that does include some hear expenditures for systems. We've got the new planning system in there. We've got an entirely new AS/400 box in there. We've got a Microsoft upgrade in there. So the last year's guidance was $39 million as well. So were giving actually the same guidance. And we hope to do accurate than that. But that's kind of a worst case scenario.

Tracy Kogan – Nomura Securities International, Inc.

And then, and is that a good run rate say for F'13 and beyond?

Keith A. McDonough

No, I don't think it would be. Relative to the business and the scale of the business, I think that $39 million is kind of heavy. And again, it's up from I think 32 in 2011. Now these numbers are net of tenant allowances, right. So when the 10-K comes out, make sure you differentiate those tenant allowance out of the CapEx.

Tracy Kogan – Nomura Securities International, Inc.

Got you. Thanks so much guys.

Operator

It appears there are no further questions at this time. I'd like to turn the conference back over to Mr. Bob Fisch for any additional or closing remarks.

Robert N. Fisch

Thank you and thank you for all of your time and interest in rue21. We hope to see everyone here in sunny Pittsburgh for our analysts day on Wednesday, April 18th, 2012. See you all soon. Take care. Bye.

Operator

That concludes today's conference. Thank you for your participation.

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