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