Recreational Equipment, Inc. pointed to favorable weather throughout much of the country and a 10% increase in co-op active membership for an annual sales increase of 15% to $1.02 billion in 2005 from $887 million in the previous year. This is the first time in the co-ops 67-year history that it has surpassed the $1 billion milestone. Six new retail stores in Bend, OR, Huntington Beach, Calif., Marlton, N.J., Pittsburgh, Penn., Plano, Tex. and Raleigh, N.C. also helped spur growth with stronger than expected initial sales. REI comp store sales increased 9.6% in 2005 on top of a 5.3% increase in 2004. Direct sales posted an overall gain of 20.7%, led by online growth from REI.com and REI-OUTLET.com.
In recognition of this milestone, REI announced a record member refund of more than $50 million and will dedicate $1 million to 100 community parks across the country, above and beyond its more than $3 million in grants previously earmarked this year for outdoor recreation and conservation causes.
Gross margin remained relatively stable year-on-year, with a 10 basis point increase to 43.9% of sales. Operating and administrative expenses declined slightly as a percentage of sales to 35.5% in 2005 compared to 35.7% in 2004.
For the year, REIs operating income increased 19.4% to $86 million compared to $72 million last year. This represents an 8.4% operating margin in 2005 compared to 8.1% in 2004. Net income outpaced sales two-to-one and increased by 29.3% to $32.7 million compared to $25.3 million last year. The company also retired the last of its long-term debt and is completely debt free for the first time since 1985.
Looking forward, it is likely that REI will continue to expand its retail store count by roughly 10% per year with an emphasis on east coast expansion. The companys new Eastern regional distribution center in Bedford, PA is expected to be operational in 2006.