Rue21 Profits, Sales Up On Back To School

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One way to get the teen crowd psyched about shopping for clothes is to wow them with a new crop of cool fashions.

That message rang true for teen clothing chains during this year's back-to-school shopping season. Attractive prices on skinny jeans, printed tops, colored denim and other hip items put students -- and their parents -- in more of a buying mood as they looked to refresh their wardrobes for the new school year.

The wow factor helped drive brisk spending on apparel during the back-to-school buying period, which ran from late July to mid-September.

"There looked to be more of a shift of dollars out of consumer electronics into apparel this season than we've seen in several years," said Ken Perkins, president of Retail Metrics.

The result? A lot of retailers had a pretty good back-to-school season, he says.

Value-priced teen clothing chainRue21 ( RUE ) is one of them.

The company said in its Aug. 23 second-quarter conference call it was very pleased with the customers' reaction to its back-to-school assortments. And if watchers are on target, it ended up with good grades for the entire season.

On Top Of Trend

"Rue21 had a nice, solid back-to-school season," said Piper Jaffray analyst Stephanie Wissink.

Its ability to stay on top of the latest fashion trends worked to its advantage during the back-to-school period. It uses a fast-fashion approach to its business, which allows it to quickly identify and respond to trends and bring in the newest, tested concepts and styles. It regularly edits its assortment to reflect key fashion trends and ships daily deliveries of merchandise.

"They want to be known for fashion-driven purchases vs. the commoditized basics," said Wissink.

This focus helped Rue21 lure customers during back-to-school season. By skewing its assortment toward the higher-fashion merchandise, it was able to capitalize on fashion demand, Wissink says.

Rue21 operates in a highly competitive teen apparel space, which includes chains such asAmerican Eagle Outfitters ( AEO ),Aeropostale ( ARO ) andWet Seal ( WTSLA ).

With unemployment still high and the economy still sluggish, consumers are looking to stretch their dollars. Rue21's pricing works in its favor, Perkins says.

"They tend to have good opening price points of under $20, which should bode well in terms of their ability to generate traffic," he said.

Judging from its long-running winning streak, Rue21 has had no trouble drawing traffic. The retailer has posted double-digit sales and earnings growth every quarter since going public Nov. 13, 2009. In the most recent second quarter, earnings rose 16% to 36 cents a share, ahead of views. Sales grew 17% to $202.1 million, short of the $203.32 million forecast by analysts polled by Thomson Reuters.

Same-store sales were up only 0.5%, vs. a year ago.

The low same-store sales growth reflects a roughly 100-basis-point shift in sales from late July to early August, said Wissink in a report.

"Sales have accelerated into August at an even greater pace than the shift," she adds.

Rue21 isn't a big "outperformer" when it comes to same-store sales growth, Wissink says, but it is an earnings outperformer.

"It's not a company that delivers high comp rates because its stores open near mature store volumes," she adds.

"But it's a real steady performer with great cash flow generation."

For the third quarter, the company sees a low-single-digit increase in same-store sales. It expects total sales growth in the high teens.

Based on second-quarter results, the company raised its full-year earnings outlook to $1.80 to $1.85, vs. its prior guidance of $1.76 to $1.81.

Rue21 gears its hip clothes, shoes and accessories to young girls and guys who want to look and feel like they're 21. It sells exclusive brands, such as its namesake, Carbon and CJ Black. At the end of the second quarter, it had 843 stores in 46 states. It expects to have opened a total of 120 stores in 2012.

Unique Positioning

Rue21 has a "highly unique positioning" in the market, says Wissink.

It opens stores in spots such as strip centers in small and midsize communities, where there's not a lot of apparel stores like American Eagle and Wet Seal geared to teens and young adults.

Many of its stores, says Wissink, are based in small towns where there's limited competition outside ofWal-Mart ( WMT ), "which doesn't have the "cool factor," she says.

"They have a great cohabitation strategy with Wal-Mart."

Analysts surveyed by Thomson Reuters expect full-year earnings to rise 19% to $1.85 a share. They see a 14% rise in 2013.

Perkins expects Rue21 to be a shopping destination this holiday season to the extent it offers good fashion and it keeps its opening price points tight -- at around $5, $10, $15 and $20 -- with a broad selection of merchandise.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas

Referenced Stocks: AEO , ARO , RUE , WMT , WTSLA

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