THE BUZZ
What do IPO investors and "Twilight" fans have in common? For one thing, they both thrive on anticipation. And as teenage girls everywhere count the days till the Nov. 20 release of the latest film in the vampire saga, they'll have something else in common: Rue21.
Since emerging from bankruptcy in 2003, the clothing retailer has prided itself on nimbleness in keeping up with teen trends. Now it's selling a diverse line of T-shirts with images from the upcoming "Twilight: New Moon." But don't expect that to wear out its welcome. In the pre-IPO roadshow, CEO Robert Fisch said customers typically drop by stores two or three times a week to see what's new.
The IPO's timing could be better, though. Last week, several of Rue21's peers, notably Aeropostale (ARO), reported October sales below expectations. Rue21 says its same-store sales grew 13.5% in its latest quarter, but industry conditions often affect a new issue's reception.
"What's important are the fundamentals of the company, but also that the market might not be ready to affirm that this sector is ready for another growth spurt," said David Menlow, president of IPO Financial.
The fact that this is a story where a private equity firm, Apax Partners, snapped up a bankrupt company for literally a penny a share might also cast a shadow on the deal, Menlow says. However, the fact that Apax isn't actually selling any shares in the IPO is an encouraging sign, he says.
THE COMPANY
The firm was first incorporated as Pennsylvania Fashions in 1976. It filed for bankruptcy in 2002 and its new CEO, Fisch, overhauled the business and refocused it under one brand name, Rue21. The name is the French word for "street" combined with the ideal age of its customers. The prospectus explains: "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.'"
Since then, Rue21 has grown rapidly and now runs over 500 stores in 43 states, with the greatest concentration in the South. It offers value-priced clothing in small to midsize markets; many of its locations are next-door neighbors to Wal-Mart (WMT). About half its stores are in strip malls, with the rest split between regional malls and outlet centers.
All the products are designed and made exclusively for Rue21, through outsourcing arrangements. Over the last few years, the firm has rolled out several subbrands. It launched its male line, Carbon, in 2005. In 2006 it launched a female accessory division called etc!, which it has remodeled more than half of its stores to accommodate.
