By  on August 8, 2007

Double-digit increases in selling and administrative costs overshadowed rising sales for True Religion Apparel Inc. during the second quarter, causing the premium denim maker to miss Wall Street's estimates by a wide margin.

For the three months ended June 30, the Vernon, Calif.-based company reported a 3.7 percent rise in earnings to $5.1 million, or 21 cents a diluted share, compared with earnings of $4.9 million, or 21 cents a share, during the same period a year ago. Wall Street analysts had expected average earnings per share of 26 cents for the quarter.

But management's focus on expanding company-owned retail operations helped drive a 16.3 percent rise in sales to $35.7 million compared with $30.7 million in the year-ago period. Online and branded-store sales increased to $6.5 million from $700,000 last year. The company now operates six standard stores and two outlets, while it had only one owned store open during the second quarter a year ago. The wholesale segment posted a 9.9 percent increase in sales to $24.4 million from $22.2 million.

"The premium denim category continues to be very healthy for us and we are one of the strongest brands in the space," said Jeffrey Lubell, chairman and chief executive officer, during a conference call with analysts. The brand is consistently among the top three brands at retail, added Lubell.

Double-digit sales declines continued in the international segment, which dropped 39.7 percent to $4.7 million compared with sales of $7.8 million a year ago. Management attributed the plunge to poor sales in Japan and the U.K. and an earlier start of fall shipments last year. The results follow a similarly difficult first quarter, when the company's international segment saw sales fall 25.8 percent to $6.9 million from $9.3 million during the quarter.

Ultimately, significant increases in selling, general and administrative costs weighed heaviest on earnings. SG&A expenses ballooned 43.5 percent to $12.2 million from $8.5 million. Charges related to the departures of former chief financial officer Charles Lesser and vice president Kymberly Gold-Lubell, as well as costs associated with the company's hiring of Goldman Sachs to explore a possible sale of the company, cost $1.2 million during the quarter. An additional $2.3 million was spent beefing up the owned retail business.

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