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True Religion Net Sales Soar in Q2

Bottom line boosted by higher margins and store expansions.

The premium bubble showed no signs of bursting in the second quarter at True Religion Apparel Inc.

This story first appeared in the August 7, 2008 issue of WWD.  Subscribe Today.

The Vernon, Calif.-based company blew past year-ago results and analysts’ expectations for the three months ended June 30 with an 86 percent leap in net income and a 78.9 percent increase in net sales.

Full-year earnings guidance was raised to $1.61 to $1.65 a diluted share from the $1.52 to $1.61 range provided on May 8. Sales are now expected to land between $242 million and $247 million, $22 million above the previous forecast.

In the quarter, net income totaled $9.3 million, or 39 cents a diluted share, 7 cents above the consensus analyst estimate. Year-ago profits reached $5 million, or 21 cents.

Sales hit $64.2 million versus $35.9 million in the year-ago quarter. U.S. wholesale revenues, the largest segment of the business, were up 57.3 percent to $38.4 million, and international wholesale revenues grew 66.3 percent to $7.8 million. The consumer direct segment almost tripled to $17.7 million from $6.5 million as its store count grew to 30 from eight a year ago.

The company, which operates 34 stores, including eight outlets, expects to have 39 stores by the end of the year. On a conference call, executives said they will travel to London in the months ahead to scout locations for the first branded store in Europe, which True Religion is considering operating on a franchise basis.

With plans to open 20 to 25 stores a year, retail could account for half of sales by the end of 2010. In the third quarter, stores and e-commerce accounted for 27.5 percent of its $64.2 million in sales.

Gross margin grew to 57.5 percent of sales in the period from 57.3 percent in the year-ago quarter, which the company attributed to a shift in its merchandise mix toward the higher-margin retail and e-commerce businesses.

“During the second quarter, we experienced broad-based sales momentum, with strong growth across each of our business segments,” said Jeffrey Lubell, chairman, chief executive officer and creative director.

For the six months, net income increased 59.9 percent to $16.2 million, or 67 cents a diluted share, from $10.1 million, or 43 cents, in the first half of 2007. Sales were up 63.1 percent to $117.6 million from $72.1 million.
— With contributions from Khanh T.L. Tran