By  on August 1, 2012

True Religion Apparel Inc. exceeded Wall Street’s second-quarter earnings expectations but saw its stock hit hard in after-hours trading on sales softness and weak full-year guidance.

Revenues suffered from declines in Korea and Canada and a tepid reaction to new women’s styles introduced by the company, executives said.

Following the 4 p.m. disclosure of quarterly results Tuesday, shares dipped $2.88, or 11 percent, to $23.36 after declining $1.03, or 3.8 percent, to $26.24 during the trading day.

For the three months ended June 30, net income rose 3.6 percent to $9.8 million, or 39 cents a diluted share, from $9.4 million, or 38 cents, in the year-ago quarter. The 2011 results included a litigation settlement and charge for bad debt expense that reduced earnings per share by 5 cents.

Revenues grew 6.8 percent to $104.9 million from $98.3 million. Comparable-store sales rose 2.4 percent in the U.S., contributing to a 9.4 percent increase to $64.4 million in the domestic direct channel, and were up 6.7 percent, to $22.4 million, for U.S. wholesale operations. International sales were down 2 percent to $17.7 million. Gross margin slipped to 64.3 percent of sales from 65.5 percent a year ago.

Second-quarter EPS of 39 cents was 4 cents better than the 35 cents anticipated, on average, by analysts, but the revenue number fell short of the $107.3 million projected by Wall Street. Adding urgency to the after-hours sell-off, full-year guidance for sales of $450 million to $455 million and EPS of between $1.80 and $1.86 was below the respective levels of $467.8 million and $1.97 earlier forecast by analysts.

Although pleased by the increase in comps, Jeffrey Lubell, chairman, chief executive officer and chief merchant of the Vernon, Calif.-based firm, noted, “We did not achieve our sales plan due primarily to weaker response towards our spring and summer merchandise assortment. However, we carefully managed our business throughout the quarter, including the initiation of a semiannual sale, expanded sales efforts to specialty accounts in the U.S. wholesale segment and reinforced overhead cost discipline.”

While its products for men enjoyed a good quarter, True Religion continued to struggle with its women’s business and saw some of its attempts at redirection rebuffed by consumers.

Lynne Koplin, president, told participants on a late afternoon conference call that four new collections for women “did not resonate well with our customers. While we are committed to expanding and evolving our assortment to include fresh and innovative new merchandise, we were overly aggressive with the pace of change this season. While we will continue to make every effort to provide an exciting merchandise offering to our customers, we will need to be more strategic in the way we introduce new product concepts and maintain a better balance between new collections and core styles that are familiar to our repeat customers.”

The firm finished the second quarter with 116 stores in the U.S. and 23 international units.

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