Rue21 shares fall on sales worries

Rue21 2nd-qtr profit up, but shares fall on weak same-store sales revenue growth

Associated Press

WARRENDALE, Pa. (AP) -- Shares of Rue21 fell Friday, a day after the clothing retailer posted revenue that fell short of expectations, as well as flat sales at comparable stores.

THE SPARK: Revenue at stores open at least a year rose just 0.5 percent, well below analyst expectations. That's a key metric of a retailer's health because it strips out the volatility of stores opened or closed recently. Most of the sales growth stemmed from the opening of new stores.

Revenue rose 17 percent to $202.1 million from $172.8 million, just shy of analyst predictions for $203.4 million.

Revenue figures overshadowed better-than-expected profits.

For the quarter ended July 28, the company earned $9.1 million, or 36 cents per share, up from $7.7 million, or 31 cents per share, in the same quarter last year.

Analysts, on average, expected a profit of 34 cents per share, according to a FactSet poll.

THE BIG PICTURE: Based on the second-quarter results, the company said it now expects to post a 2012 profit of $1.80 to $1.85 per share, up from its previous prediction of $1.76 to $1.81 per share. Analysts expect a profit of $1.81 per share.

The company also predicted a third-quarter profit of 38 to 40 cents per share on a "low single digit" increase in revenue at stores open at least a year. Analysts expect earnings of 39 cents per share.

THE ANALYSIS: Janney Capital markets analyst Adrienne Tennant, said the company's better-than-expected profit stemmed from a lower tax rate and noted that its same-store sales increase fell short of average expectations of 2 percent growth.

"We commend management on their consistent performance in delivering earnings-per-share growth, especially as few retailers are raising fiscal year guidance at this time; however, investors may be disappointed by the below-consensus comp," Tennant wrote. She still maintained a "Buy" rating for the company.

Nomura analyst Paul Lejuez backed his "Neutral" rating for Rue21 Inc., also pointing to the tax benefit and weak sales trends.

"Although back-to-school shopping is off to a good start, lackluster comps and lower sales per square foot have become a pattern," Lejuez wrote.

THE SHARES: Down $1.62, or 5.6 percent, to $27.25 in midday trading, after dropping as low as $27.04 earlier in the day. Over the past 52 weeks, the company's shares have traded between $19.69 and $31.97.

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