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True Religion Apparel Announces Second Quarter 2011 Financial Results

^{Published on 2011-07-28 13:10:53 - Market Wire}
 

VERNON, Calif.--([ BUSINESS WIRE ])--True Religion Apparel, Inc. (Nasdaq: TRLG) today announced financial results for the quarter ended June 30, 2011.

"Our first half results reinforce our view that our expanding direct-to-consumer business provides us the best opportunity to present our collection to loyal and new customers."

Second Quarter 2011 Financial Results

• Total net sales increased 19.6% to $98.3 million.
• Net sales for the Companya™s U.S. Consumer Direct segment, which includes the Companya™s branded retail stores and e-commerce site, increased 41.6% to $58.8 million and accounted for 59.9% of the Companya™s total net sales for the quarter. Second quarter same-store sales for the 81 stores open at least 12 months and e-commerce increased 14.8%. The Company operated a total of 102 branded stores in the United States as of June 30, 2011, compared to 81 as of June 30, 2010.
• Net sales for the Companya™s U.S. Wholesale segment totaled $21.0 million, an 18.2% decrease as compared to the prior year. This segmenta™s sales continue to be impacted by our challenging sales trend for womena™s denim in the major department store channel. In addition, and consistent with the Companya™s 2011 plan, sales to off-price customers were reduced to support long-term brand value. Sales to the specialty store channel increased for the fifth consecutive quarter.
• Net sales for the Companya™s International segment increased 31.4% to $18.1 million. Growth in the segment was driven by the opening of three branded retail stores in Canada since June 30, 2011 and the transition from a wholesale distributor to a consolidated joint venture in Germany in August 2010.
• Gross profit increased 22.2% to $64.4 million, driven primarily by the overall sales growth. The gross margin rate increased 140 basis points to 65.5%, reflecting the ongoing sales mix shift towards the higher-margin U.S. Consumer Direct segment.
• Selling, general and administrative (aSG&Aa) expenses, as a percentage of net sales, increased to 50.1% from 49.5% in the same quarter a year ago. The SG&A rate increase is primarily due to increased SG&A spending over the past year in the International segment due to the addition of wholesale sales personnel in Germany, the UK and Italy; the addition of five new retail stores; and the establishment of our regional office in Switzerland, which includes our EMEA managing director and regional headquarters staff. Also, in the second quarter of 2011, the Core Services segment recorded a $1.5 million reserve for a settlement of a pending litigation claim and the U.S. Wholesale segment incurred a $0.7 million write-off of a receivable from MetroPark due to its recent bankruptcy filing. The second quarter of 2010 results included $4.5 million in separation costs ($2.9 million net of income tax or $0.12 per diluted share).
• Operating income totaled $15.2 million, up 26.6% from the second quarter of last year. Operating margin was 15.4% in the second quarter of 2011 versus 14.6% in the second quarter of 2010. The second quarter of 2011 operating margin benefited primarily from the reduction in separation costs and an improvement in the Consumer Direct segmenta™s operating margin, which was driven by the 14.8% same-store sales increase. These changes were partially offset by the International expansion costs, the reserve for a settlement of a pending litigation claim and the MetroPark bad debt write-off.
• The effective tax rate for the quarter was 37.9% as compared to 37.1% in the second quarter of 2010. The 2011 effective tax rate increased over 2010 as the Company established its European headquarters in Switzerland.
• Net income attributable to True Religion Apparel, Inc. increased to $9.4 million, or $0.38 per diluted share based on weighted average shares outstanding of 25.0 million, as compared to $7.5 million, or $0.30 per diluted share based on weighted average shares outstanding of 24.7 million in the 2010 second quarter.

Management Comments

aWe are pleased that we exceeded our net sales and profitability targets for the second quarter of the year. The standout performance this quarter was our U.S. Consumer Direct segment, which benefitted from new store openings, a same-store sales increase of 14.8% and consistent operating cost oversight, which combined to deliver a 370 basis point increase in the segmenta™s operating margin. We also achieved a 31% increase in our International net sales, as we benefited from strategic investments and more direct control of our business, especially in Canada and Germany,a stated Jeffrey Lubell, Chairman, Chief Executive Officer and Chief Merchant of True Religion Apparel, Inc. aOur first half results reinforce our view that our expanding direct-to-consumer business provides us the best opportunity to present our collection to loyal and new customers.a

Year-to-Date 2011 Financial Results

• Total net sales increased 20.0% to $192.0 million in the first six months of 2011. Net sales for the Companya™s U.S. Consumer Direct segment increased 39.7% to $112.2 million, and same-store sales for the first six months of 2011 increased 11.1%. Net sales for the Companya™s U.S. Wholesale segment totaled $41.9 million, a 15.9% decrease as compared to the prior year period due to decreases in sales to major and off-price accounts, which was partially offset by an increase in sales to the specialty accounts. Net sales for the Companya™s International segment increased 32.7% to $36.6 million in the first six months of 2011.
• Gross profit increased 21.9 % to $125.1 million, and gross margin expanded by 110 basis points to 65.2% of net sales. The overall improvement in gross margin was due to the ongoing sales mix shift toward the Companya™s higher-margin Consumer Direct segment.
• SG&A expense increased 23.0% to $95.1 million from $77.3 million in the prior year period, and as a percentage of net sales, increased to 49.5% from 48.3% in the prior year period. The majority of the growth in SG&A expenses was driven by the costs associated with operating 21 additional stores in the U.S. in 2011 as compared to the same period in 2010. Also contributing to this increase is the increased SG&A spending in the International segment due to the addition over the past year of wholesale sales personnel in Germany, the UK and Italy; the addition of five new retail stores; and the establishment of our regional office in Switzerland. These amounts were partially offset by the $4.5 million reduction in separation costs that were incurred in the second quarter of 2010. The SG&A rate was impacted primarily by increased International SG&A spending, which was partially offset by the reduction in separation costs.
• Operating income increased 18.5% to $30.0 million, or 15.6% of net sales versus 15.8% of net sales in the prior year period. The operating margin decline was primarily due to the investments made in the International segment to take direct control of sales and support long-term growth, which was partially offset by the reduction in the separation costs.
• Net income attributable to True Religion Apparel, Inc. was $18.4 million, or $0.74 per diluted share based on weighted average shares outstanding of 25.0 million, as compared to $15.9 million, or $0.64 per diluted share based on weighted average shares outstanding of 24.8 million in the prior year period.

Balance Sheet and Liquidity

As of June 30, 2011, the Company had $173.7 million of cash and cash equivalents as compared to $153.8 million as of December 31, 2010. The Company ended the quarter with no long-term borrowings. The inventory balance as of June 30, 2011 was $47.3 million, an 18.5% increase from the end of the second quarter of 2010 and a 13.5% increase from the beginning of 2011. This increase is the result of opening 21 U.S. and five international branded retail stores since June 30, 2010, and the expanded wholesale sales presence in Germany associated with the transition from wholesale distributor to consolidated joint venture in August 2010.

Net cash provided by operating activities for the first six months of 2011 was $34.6 million compared to $26.3 million in the first six months of 2010. This increase in net cash provided by operating activities is linked to the Companya™s net income growth, the timing of income tax payments, and a decrease in accounts receivable linked to the U.S. wholesale sales decline.

Store Openings

During the 2011 second quarter, True Religion Apparel opened six stores in the U.S. and two stores in Canada, relocated one in the U.S. and closed one outlet store in Japan. As of June 30, 2011, the Company operated 102 stores in the U.S., three stores in Canada, three stores in Japan, two stores in Germany, and one store in the U.K. The Company anticipates opening twelve additional retail stores in 2011, including eight stores in the U.S. and four stores outside the U.S.

Investor Conference Call and Management Commentary

True Religion Apparel management will host a conference call to discuss the financial results and answer questions today at 4:30 p.m. ET. The conference call will be available to all interested parties through a live webcast at [ www.truereligionbrandjeans.com ] and [ www.earnings.com ]. Please visit one of these Web sites at least 15 minutes prior to the start of the call to register and download any necessary software. For those unable to listen to the live broadcast, the call will be archived and available online at both sites. A telephone replay of the call will be available for approximately one month following the conclusion of the call by dialing (877) 870-5176 (domestic) or (858) 384-5517 (international) and entering conference identification: 375569. Please note participants must enter the conference identification number in order to access the replay.

A detailed financial commentary from the Companya™s management will be posted on the Company's website, [ www.truereligionbrandjeans.com ], in the Investor Relations section.

About True Religion Apparel, Inc.

True Religion Apparel, Inc. is a growing, design-based jeans and jeans-related sportswear brand. The Company designs, manufactures and markets True Religion Apparel products, including its premium True Religion Brand Jeans. Its expanding product line, which includes high-quality, distinctive styling and fit in denim, sportswear, and licensed products, may be found in the Companya™s branded retail stores as well as contemporary department stores and boutiques in 50 countries on six continents. As of June 30, 2011, the Company owned and operated 102 branded retail stores in the United States, three branded retail stores in Canada, three branded retail stores in Japan, two branded retail stores in Germany, and one branded retail store in the United Kingdom. For more information, please visit [ www.truereligionbrandjeans.com ].

Note: In the fourth quarter of 2010 the Company made changes to the classification of SG&A expenses in its business segments. The U.S. Wholesale and Core Services operating income amounts presented above reflect the impact of these reclassifications. Please refer to the Form 8-K filed on February 24, 2011, for the presentation of operating income as previously reported and as reclassified.

This press release contains forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Among these forward looking statements are our 2011 Guidance, forecasted store openings for 2011 and expected operating and financial performance and the other statements contained in this press release addressing our plans, expectations, future financial condition and results of operations. These forward-looking statements are not historical facts and are inherently uncertain and outside of our control.Any or all of our forward-looking statements in this press release may turn out to be wrong.They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Actual future results may vary materially. Factors that may cause our plans, expectations, future financial condition and results to change are described in our Annual Report on Form 10-K, Reports on Form 10-Q and our other filings with the SEC, and include: the current downturn in the global economy and in particular, the decline in consumer spending generally and in the apparel industry more specifically; the Companya™s ability to predict fashion trends; the Companya™s ability to continue to maintain its brand image and reputation; competition from companies with significantly greater resources than ours; and the Companya™s ability to continue and manage its expansion plans.