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True Religion (TRLG) Announces Financial Results For Fourth Quarter and Full Year 2009

Feb. 24, 2010 (Business Wire) — True Religion Apparel, Inc. (Nasdaq: TRLG) today announced financial results for the quarter and year ended December 31, 2009.

Fourth Quarter 2009 Financial Results

  • Total net sales were $92.8 million, an increase of 27.2% as compared to $73.0 million in the fourth quarter of 2008.
    • Net sales for the Company’s consumer direct segment, which includes the Company’s branded retail stores and e-commerce site, increased 84.8% to $45.1 million as compared to $24.4 million in the prior year period. Fourth quarter same-store sales for 36 stores open at least 12 months increased 22.3%. The Company operated 70 branded stores as of December 31, 2009, compared to 42 as of December 31, 2008.
    • Net sales for the Company’s U.S. wholesale segment totaled $31.6 million as compared to $36.4 million in the prior year period; the 13.1% decline was due to lower sales to Majors and boutiques.
    • Net sales for the Company’s international segment increased 24.3% to $14.6 million as compared to $11.8 million in the prior year period.
    • Net sales included $1.5 million of licensing revenue as compared to $0.5 million in the same period last year.
  • Gross profit was $58.7 million, or 63.2% of net sales, compared to $43.3 million, or 59.3% of net sales, in the fourth quarter of 2008. The overall improvement in gross margin was primarily due to the ongoing sales mix shift toward the Company’s higher-margin consumer direct segment, with a higher international segment gross margin offset by a reduction in the U.S. wholesale gross margin.
  • Selling, general and administrative (“SG&A”) expense increased 48.6% to $34.8 million as compared to $23.4 million in the prior year period. As a percentage of net sales, SG&A increased 540 basis points to 37.5% from 32.1% in the same period a year ago. The year-over-year growth in SG&A expenses was driven by the costs associated with the opening of 28 new stores since December 31, 2008 and additional in-house resources.
  • Operating income increased 20.4% to $23.9 million as compared to $19.8 million in the prior year period. Operating income was 25.7% of sales in Q4 2009 versus 27.2% in Q4 2008.
  • The effective tax rate for the quarter was 38.9% as compared to 36.5% in the fourth quarter of 2008.
  • Net income increased 15.2% to $14.6 million, or $0.59 per diluted share based on weighted average shares outstanding of 24.8 million, as compared to $12.7 million, or $0.53 per diluted share based on weighted average shares outstanding of 24.1 million in the 2008 fourth quarter.

Management Comments

Jeffrey Lubell, Chairman, Chief Executive Officer and Chief Merchant of True Religion Apparel, commented: “The introduction of new jeans and related sportswear and licensed merchandise was both the foundation and catalyst for another year of record sales and profitability for True Religion. The growth of our U.S. consumer direct platform as well as the ongoing development of the True Religion brand in international markets provided incremental sales and earnings over the past year and should continue to offer our company future growth opportunities. We were also pleased to have exceeded our 2009 sales and earnings goals and delivered against our strategic and financial objectives despite the tremendous changes in the global macro-economy that occurred throughout last year.”

Mr. Lubell continued, “We recognize the importance of always looking to evolve the organization in a manner that will best position the True Religion brand for healthy long-term growth. We believe our performance in 2009 reinforces our strategy: to continually design and introduce trend-setting jeans and related sportswear; to balance our distribution between wholesale and consumer direct; and to increase our presence in the international market, which we believe has the potential of being larger than the domestic market. We also believe the strategic investments in our personnel, systems and infrastructure that we made over the past year will position our organization to take advantage of the many growth opportunities we have in front of us.”

2009 Financial Results

  • Total net sales were $311.0 million, an increase of 15.2% as compared to $270.0 million in the year ended December 31, 2008.
    • Net sales for the Company’s consumer direct segment increased 71.3% to $129.0 million as compared to $75.3 million in the prior year.
    • Net sales for the Company’s U.S. wholesale segment decreased 19.6% to $123.2 million as compared to $153.2 million in the prior year.
    • Net sales for the Company’s international segment increased 36.0% to $54.5 million as compared to $40.0 million in the prior year.
    • Net sales included $4.3 million of licensing revenue as compared to $1.4 million in the prior year.
  • Gross profit increased 24.6% to $195.6 million, or 62.9% of net sales, compared to $157.0 million, or 58.1% of net sales, in 2008. The overall improvement in gross margin was primarily due to the ongoing sales mix shift toward the Company’s higher-margin consumer direct segment.
  • Selling, general and administrative (“SG&A”) expense increased 33.9% to $118.0 million from $88.1 million in the prior year, and as a percentage of net sales, increased 530 basis points to 37.9% from 32.6% in the prior year. The year-over-year growth in SG&A expenses was driven by the costs associated with the significant expansion of the Company’s consumer direct segment and other in-house resources.
  • Operating income increased 12.7% to $77.6 million, or 25.0% of net sales, from $68.9 million, or 25.5% of net sales, in the prior year.
  • The effective tax rate for the year ended December 31, 2009 was 39.1% compared to 36.6% in the prior year.
  • Net income increased 6.7% to $47.3 million, or $1.92 per diluted share based on weighted average shares outstanding of 24.7 million, from $44.4 million, or $1.83 per diluted share based on weighted average shares outstanding of 24.3 million, in the prior year.

Balance Sheet and Liquidity

As of December 31, 2009, the Company had $105.5 million of cash and cash equivalents as compared to $57.2 million as of December 31, 2008. The Company also ended the year with no long-term borrowings. Inventory increased to $34.5 million, or by $8.7 million, from the same time a year ago, to support the expansion of the Company’s branded retail stores. Net cash provided by operating activities during 2009 was $66.5 million compared to $49.1 million in the prior year.

Store Openings

During the 2009 fourth quarter, True Religion opened four new stores, bringing its total store count at December 31, 2009, to 70 stores, compared to 42 stores at December 31, 2008. The Company anticipates opening 30 new retail stores in 2010, including 27 stores in the U.S. and its first three international full-price stores: Tokyo, London, and Toronto.

2010 Guidance

The Company is initiating its guidance for the fiscal year ended December 31, 2010, as follows:

  • Total net sales are expected to be approximately $360 million.
  • EPS is expected to be in the range of $2.00 to $2.10.

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

  • Net sales growth within the Company’s consumer direct segment are forecasted to grow between 40% and 45% compared to 2009. This growth assumes 28 new retail stores (27 in the U.S. plus one store in Toronto) and the full year impact of the 28 stores opened in 2009.
  • Net sales in the Company’s U.S. wholesale segment are expected to decrease in the mid-teens on a percentage basis as compared to 2009, mostly driven by management’s decision to reduce sales to the off-price channel by $10 million and instead place a greater emphasis on regular-price wholesale sales.
  • The international segment’s net sales are forecasted to increase by approximately 20% as compared to 2009.
  • The Company’s licensing revenues are expected to increase by approximately 15% as compared to 2009.

The Company’s 2010 EPS guidance reflects fully diluted weighted average shares outstanding of approximately 25.1 million and an effective tax rate of 37.6%, which will be down 150 bps from 2009 due to an increased federal credit rate available to domestic manufacturers in 2010.

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 (877) 660-6853 (domestic) or (201) 612-7415 (international) and entering account: 3055 and conference identification: 342908. Please note participants must enter both the account and Conference identification numbers in order to access the replay.

About True Religion Apparel, Inc.

True Religion Apparel, Inc. is a growing, design-based jeans and jean-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 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.

Q4 & FY 2009 Segment Results

(Dollar amounts in thousands)

Quarters Ended December 31, Years Ended December 31,
% Increase/ % Increase/
Net sales: 2009 2008 Decrease 2009 2008 Decrease
Consumer Direct $ 45,145 $ 24,424 84.8 % $ 129,029 $ 75,314 71.3 %
U.S. Wholesale 31,582 36,358 (13.1 )% 123,203 153,235 (19.6 )%
International 14,617 11,755 24.3 % 54,479 40,044 36.0 %
Other 1,494 453 229.8 % 4,289 1,407 204.8 %
Total net sales $ 92,838 $ 72,990 27.2 % $ 311,001 $ 270,000 15.2 %
Quarters Ended December 31, Years Ended December 31,
2009 2008 2009 2008
Gross Gross Gross Gross
Margin Margin Margin Margin
Gross Profit: Amount % Amount % Amount % Amount %
Consumer Direct $ 33,147 73.4 % $ 18,273 74.8 % $ 95,276 73.8 % $ 57,669 76.6 %
U.S. Wholesale 16,021 50.7 % 18,740 51.5 % 65,882 53.5 % 78,670 51.3 %
International 8,047 55.1 % 5,798 49.3 % 30,115 55.3 % 19,255 48.1 %
Other 1,494 100.0 % 453 100.0 % 4,289 100.0 % 1,407 100.0 %
Total gross profit $ 58,709 63.2 % $ 43,264 59.3 % $ 195,562 62.9 % $ 157,001 58.1 %
Quarters Ended December 31, Years Ended December 31,
2009 2008 2009 2008
Operating Operating Operating Operating
Margin Margin Margin Margin
Operating Income: Amount % Amount % Amount % Amount %
Consumer Direct $ 17,413 38.6 % $ 8,540 35.0 % $ 44,766 34.7 % $ 27,810 36.9 %
U.S. Wholesale 6,253 19.8 % 11,270 31.0 % 30,763 25.0 % 47,452 31.0 %
International 6,374 43.6 % 4,652 39.6 % 25,167 46.2 % 16,761 41.9 %
Other (6,157 ) NM (4,627 ) NM (23,099 ) NM (23,147 ) NM
Total operating Income $ 23,883 25.7 % $ 19,835 27.2 % $ 77,597 25.0 % $ 68,876 25.5 %

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 2010 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 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 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.

TRUE RELIGION APPAREL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, expect per share data)
(Unaudited)
Quarters Ended Years Ended
December 31, December 31,
2009 2008 2009 2008
Net sales $ 92,838 $ 72,990 $ 311,001 $ 270,000
Cost of sales 34,129 29,726 115,439 112,999
Gross profit 58,709 43,264 195,562 157,001
Selling, general and administrative expenses 34,826 23,429 117,965 88,125
Operating income 23,883 19,835 77,597 68,876
Interest income, net (75 ) (177 ) (169 ) (1,065 )
Income before provision for income taxes 23,958 20,012 77,766 69,941
Provision for income taxes 9,323 7,305 30,434 25,570
Net income $ 14,635 $ 12,707 $ 47,332 $ 44,371
Earnings per share:
Basic $ 0.61 $ 0.54 $ 1.97 $ 1.89
Diluted $ 0.59 $ 0.53 $ 1.92 $ 1.83
Weighted average shares outstanding:
Basic 24,051 23,686 23,993 23,511
Diluted 24,847 24,050 24,659 24,270
TRUE RELIGION APPAREL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except par value amounts)
(Unaudited)
December 31, December 31,
2009 2008
ASSETS
Current Assets:
Cash and cash equivalents $ 105,531 $ 57,245
Short-term investments 4,948 4,850
Accounts receivable, net of allowances:
From customers 27,214 10,043
From factor 3 23,060
Inventory 34,502 25,828
Deferred income tax assets 8,753 6,498
Prepaid expenses and other current assets 7,000 4,148
Total current assets 187,951 131,672
Property and equipment, net 39,693 28,006
Long-term investments 4,990
Other assets 2,162 1,784
TOTAL ASSETS $ 229,806 $ 166,452
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 11,717 $ 10,633
Accrued salaries, wages and benefits 8,843 6,889
Income taxes payable 826 1,042
Total current liabilities 21,386 18,564
Long-Term Liabilities:
Long-term deferred rent 7,851 4,536
Long-term deferred income tax liabilities 2,715 1,102
Total long-term liabilities 10,566 5,638
Total liabilities 31,952 24,202
Stockholders’ Equity:
Preferred stock, $0.0001 par value, 20,000, shares authorized,
no shares issued and outstanding
Common stock, $0.0001 par value, 80,000 shares authorized,
25,250 and 24,450 issued and outstanding, respectively 3 2
Additional paid-in capital 49,840 38,554
Retained earnings 147,809 103,508
Accumulated other comprehensive income, net 202 186
Total stockholders’ equity 197,854 142,250
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 229,806 $ 166,452
TRUE RELIGION APPAREL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
Years Ended December 31,
2009 2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 47,332 $ 44,371
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 6,492 3,427
Provision for bad debts 99 577
Stock-based compensation 11,899 10,297
Tax benefit from stock-based compensation 55 229
Excess tax benefit from stock-based compensation (55 ) (229 )
Deferred income tax benefit (642 ) (128 )
Other 206 305
Changes in operating assets and liabilities:
Accounts receivable from factor 23,057 (8,271 )
Accounts receivable from customers (17,278 ) 1,914
Inventory (8,719 ) (4,377 )
Prepaid expenses and other current assets (2,861 ) (1,834 )
Other assets (280 ) (448 )
Accounts payable and accrued expenses 2,800 (825 )
Accrued salaries, wages and benefits 1,954 2,831
Income taxes payable (884 ) (2,168 )
Long-term deferred rent 3,315 3,391
Net cash provided by operating activities 66,490 49,062
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (20,082 ) (18,187 )
Sales of investments 4,900 5,550
Expenditures to establish trademarks (128 ) (81 )
Net cash used in investing activities (15,310 ) (12,718 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Statutory tax withholding payment for stock-based compensation (3,032 ) (8,110 )
Excess tax benefit from stock-based compensation 55 229
Proceeds from exercise of stock options 25
Net cash used in financing activities (2,977 ) (7,856 )
Effect of exchange rate changes in cash 83 71
Net increase in cash and cash equivalents 48,286 28,559
Cash and cash equivalents, beginning of period 57,245 28,686
Cash and cash equivalents, end of period $ 105,531 $ 57,245
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