True Religion Apparel Reports 2009 Second Quarter Financial Results

True Religion Apparel, Inc. (Nasdaq:TRLG) today announced financial results for the three and six months ended June 30, 2009.

Second Quarter 2009 Financial Results

• Total net sales were $72.1 million, an increase of 12.4% from $64.2 million in the second quarter of 2008.
  • Net sales for the Company’s U.S. wholesale segment decreased 19.8% to $30.8 million from $38.4 million in the prior year period.
  • Net sales for the Company’s consumer direct segment, which includes the Company’s branded retail stores and e-commerce site, increased 59.8% to $28.2 million from $17.7 million in the prior year period. The Company operated 59 branded stores as of June 30, 2009, compared to 30 as of June 30, 2008.
  • Net sales for the Company’s international segment increased 53.8% to $12.1 million from $7.8 million in the prior year period.
  • Net sales included $1.0 million of licensing revenue. In the second quarter of 2009, the Company’s licensing revenues exceeded expectation by $0.5 million primarily due to certain of its licensees surpassing their net sales goals.
• Gross profit was $44.8 million, or 62.1% of net sales, compared to $36.9 million, or 57.5% of net sales, in the second quarter of 2008. The overall improvement in gross margin was primarily due to the ongoing segment mix shift toward the Company’s higher-margin consumer direct business.
• Selling, general and administrative ("SG&A”) expense increased 25.0% to $26.9 million from $21.5 million in the prior year period, and as a percentage of sales, increased 380 basis points to 37.3% from 33.5% in the same period a year ago. The year-over-year growth in SG&A expenses was driven by the increased investment in infrastructure to support the Company’s growth plans, including the expansion of its consumer direct business.
• Operating income increased 16.5% to $17.9 million, or 24.9% of net sales, from $15.4 million, or 24.0% of net sales, in the 2008 second quarter.
• The effective tax rate for the quarter was 38.8% compared to 41.1% in the second quarter of 2008. The lower effective tax rate is due to a larger portion of the Company’s 2009 earnings being generated in states that have lower tax rates. Additionally, embedded in the Company’s 2008 effective tax rate is a portion of executive compensation that was nondeductible for income tax purposes.
• Net income increased 18.4% to $11.0 million, or $0.45 per diluted share based on weighted average shares outstanding of 24.1 million, from $9.3 million, or $0.39 per diluted share based on weighted average shares outstanding of 23.9 million, in the 2008 second quarter.

Management Comments

"Our performance in the second quarter demonstrates True Religion’s continued brand leadership and operational excellence,” said Jeffrey Lubell, Chairman, Chief Executive Officer and Chief Merchant of True Religion Apparel, Inc. "In the second quarter, we continued to build brand awareness through the expansion of our consumer direct platform, execute alongside our retail partners and expand our distribution worldwide. This multi-faceted approach to growth enabled us to mitigate the broader economic challenges and deliver year-over-year growth in sales and net income of 12% and 18%, respectively. We intend to build upon our positive brand momentum in the back half of 2009 and beyond to position True Religion as a leading, global apparel brand.”

Year-to-date 2009 Financial Results

• Total net sales were $135.7 million, an increase of 15.4% from $117.6 million in the six months ended June 30, 2008.
  • Net sales for the Company’s U.S. wholesale segment decreased 15.8% to $59.7 million from $70.9 million in the prior year period.
  • Net sales for the Company’s consumer direct segment increased 74.2% to $51.3 million from $29.4 million in the prior year period.
  • Net sales for the Company’s international segment increased 39.0% to $23.3 million from $16.7 million in the prior year period.
  • Net sales included $1.5 million of licensing revenue.
• Gross profit was $83.5 million, or 61.5% of net sales, compared to $67.4 million, or 57.3% of net sales, in the first six months of 2008. The overall improvement in gross margin was primarily due to the ongoing segment mix shift toward the Company’s higher-margin consumer direct business.
• Selling, general and administrative ("SG&A”) expense increased 29.3% to $52.5 million from $40.6 million in the prior year period, and as a percentage of sales, increased 410 basis points to 38.7% from 34.6% in the same period a year ago. The year-over-year growth in SG&A expenses was driven by the increased investment in infrastructure to support the Company’s growth plans, including the expansion of its consumer direct business.
• Operating income increased 15.9% to $31.0 million, or 22.8% of net sales, from $26.7 million, or 22.7% of net sales, in the prior year period.
• The effective tax rate for the six months ended June 30, 2009 was 40.0% compared to 41.1% in the six months ended June 30, 2008. The lower effective tax rate is due to a larger portion of the Company’s 2009 earnings being generated in states that have lower tax rates. Additionally, embedded in the Company’s 2008 effective tax rate is a portion of executive compensation that was nondeductible for income tax purposes.
• Net income increased 14.7% to $18.6 million, or $0.77 per diluted share based on weighted average shares outstanding of 24.1 million, from $16.2 million, or $0.67 per diluted share based on weighted average shares outstanding of 24.1 million, in the prior year period.

Balance Sheet and Liquidity

As of June 30, 2009, the Company had $78.8 million of cash and cash equivalents and no long-term borrowings. Inventory increased to $31.3 million, or $5.4 million, from the beginning of 2009, to support the expansion of the Company’s branded retail stores. Net cash provided by operating activities during the first six months of 2009 was $30.1 million compared to $24.7 million in the prior year period.

Store Openings

During the 2009 second quarter, True Religion opened ten new stores, bringing its total store count at June 30, 2009, to 59 stores, compared to 30 stores at June 30, 2008. In July 2009, the Company opened one new store, bringing the total store count to 60 stores. The Company anticipates opening nine additional new stores by year-end 2009 for a total of 69 branded retail stores.

Guidance

The Company is updating its guidance for the fiscal year ended December 31, 2009, as follows:

• Net sales are expected to be in the range of $293 million to $300 million.
• EPS is expected to be in the range of $1.76 to $1.84.

The Company’s updated net sales guidance relies on the following assumptions:

• Forecasted net sales growth within the Company’s consumer direct segment of 60% to 65% in the full year 2009 as compared to the full year 2008.
• Net sales in the Company’s U.S. wholesale segment are expected to decline by 18% to 20% in the full year 2009 as compared to the full year 2008. This compares to the Company’s prior estimate of a net sales decline in the range of 17% to 19%. The revised guidance reflects a greater than expected decline in sales to boutiques as these customers continue to be impacted by macro-economic pressures. The Company continues to expect a mid-single digit decline in sales to Majors and off-price retailers.
• The Company’s International segment is forecasted to increase its net sales by more than 20% in 2009 as compared to 2008. This compares to the Company’s previous guidance of net sales growth in the low single digits.
• The Company’s 2009 net sales guidance now includes $4.0 million in licensing revenues versus its prior estimate of $3.1 million in licensing revenues.

The Company's 2009 EPS guidance reflects fully diluted weighted average shares outstanding of approximately 24.6 million and an effective tax rate in the range of 38.8% to 39.3%. The Company’s full year estimated effective tax rate exceeds its previously anticipated tax rate of 38.5% due to revisions to prior year tax provisions implemented in the first quarter of 2009.

Investor Conference Call

True Religion 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 the Web site 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 (800) 406-7325 (domestic) or (303) 590-3030 (international) and entering passcode: 4118222.

About True Religion Apparel, Inc.

True Religion Apparel, Inc. is a growing, design-based jean and jean-related 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 contemporary department stores and boutiques in 50 countries around the world, including the United States, Canada, Germany, United Kingdom, Japan, Korea, France, Spain, Sweden, Greece, Italy, Mexico, Australia, South Africa and China. For more information, please visit www.truereligionbrandjeans.com.

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 2009 Guidance, Segment Guidance, Store Opening Guidance 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 of Form 10-Q and our other filings with the SEC, and include: the current downturn in the United States economy and in particular, the decline in consumer spending generally and in the apparel industry more specifically; the Company’s ability to predict fashion trends; the Company’s ability to continue to maintain its brand image and reputation; competition from companies with significantly greater resources than ours; and the Company’s ability to continue and control its expansion plans.