rue21, inc. (RUE): This Incredibly Profitable Retailer is Being Acquired

Page 1 of 2

Recently, the specialty apparel retailer rue21, inc. (NASDAQ:RUE) agreed to be bought out by Apax for around $42 per share in cash, with the total transaction worth $1.1 billion. Thus, since the beginning of the year, rue21 has more than doubled from only $20 per share to the acquisition offer of $42 per share. The company will have 40 days to seek better offers. Does rue21 have a fair deal? Let’s find out.

A fair price or not?

rue21, inc. (NASDAQ:RUE), incorporated in 1976, is the specialty apparel retailer operating around 877 stores in small and middle market communities in 47 states in the U.S. The majority of its sales, 57.5% of the total sales, was generated from the girl apparel sales. Girl accessories ranked second, accounting for 23.6% of the total sales in 2012, while guys apparel and accessories represented only 18.9% of the total 2012 revenue. In the past three years, rue21 has grown its number of stores, from 638 in 2010 to 877 in 2012. Its comparable store sales growth has been positive, but at the low level during this three year period. In 2012, its comparable store sales increased by only 0.7%.

What interests me is its conservative capital structure. As of Feb. 2013, it had $178.3 million in total stockholders’ equity, $63.5 million in cash and short-term investments, and no interest-bearing debt. The biggest item in liabilities was accounts payable, at $108.76 million, while the deferred rent, tenant allowances and other long-term liabilities stayed at $59.3 million. Furthermore, rue21, inc. (NASDAQ:RUE)’s operation has been quite profitable, with a consistent double-digit return on invested capital. Since 2007, its return on invested capital has stayed in the range of 22.42% to 41.20%. In 2012, its ROIC was nearly 27%. At $42 per share, rue21 is valued at around 9.2 times EV/EBITDA. It seems that rue21 got a fair price, as the EV multiple of around 30 comparable deals was around 8.4, according to Bloomberg.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The Best B-Boy Movies

Most Awesome Hip Hop Documentaries

Foods That Stain Your Teeth

Richest Doctors in the World

The Best Movie Sountracks Ever

The Highest Grossing Musicals on Broadway

The Most Successful Reality TV Stars

Cheapest Cities to Visit in the US

Most Expensive Summer Camps

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!