Shares of rue21 Inc. soared Friday in the retailer's first day of trading, as investors responded enthusiastically to the store's expansion plans and surmised that its focus on value will win more customers from the competition.
Most of rue21's merchandise is priced below $40 _ great for consumers tightening their belts. The company also has aggressive growth goals. The Warrendale, Penn retailer operates more than 500 stores in 43 states and has plans to add 100 more next year.
Rue21's stock, which trades under the ticker symbol "RUE," rose $5.15, or 27 percent, to $24.15 in afternoon trading. Its initial public offering of about 6.8 million shares priced at $19 per share, above the $16 to $18 per-share range expected by underwriters, raising $128.6 million.
Rue21 sells clothing designed to appeal to people wanting to look and feel 21 years old. Although the merchandise is cheaper than at many other teen retail stores, it's still high quality, said Scott Sweet, senior managing partner at IPO Boutique.com, who compared rue21's prices to those at off-price retailer T.J. Maxx.
Still, rue21 may have a tougher time growing its store base than some investors think. Morningstar analyst Zoe Tan said the company's plan to open 1,000 stores by the end of 2013 is ambitious.
Also, as the retailer has expanded, it has taken on more debt and may run up against more competition from department stores, such as Kohl's and J.C. Penney, in some markets, Tan said.
Rue21's underwriters include Bank of America Merrill Lynch, Goldman Sachs & Co., and J.P. Morgan.