By  on May 10, 2007

Earnings for True Religion Apparel plunged during the first quarter because of slim sales gains and a double-digit increase in selling, general and administrative expenses.

For the three months ended March 31, the Vernon, Calif., premium denim brand reported earnings fell 35.4 percent, to $4.2 million, or 18 cents a diluted share, from $6.5 million, or 28 cents, in the same period a year ago.

Sales rose 1.5 percent, to $36.1 million from $35.6 million. The company's U.S. wholesale business was essentially flat for the quarter, generating $25.1 million compared with $25.6 million in the year-ago period. The slight decrease was attributed to a "significant expansion of retail doors" during the quarter that required building merchandise inventory.

"Our business is on plan and we believe we have made the right investments over the past six months to further secure our foothold as a denim-inspired icon brand," Jeffrey Lubell, chief executive officer, said in a statement.

Long-running problems in the Japanese market continue to plague the company's international business. Declining sales in Japan resulted in a 25.8 percent drop in the international wholesale business, to $6.9 million from $9.3 million, during the quarter.

The increase in expenses ultimately had the greatest impact on results. Expenses rose 66.5 percent, to $13.7 million from $8.2 million in the year-ago period. A portion of that jump is attributed to recent upheaval in the executive ranks. On March 8, True Religion appointed former Nordstrom vice president and corporate controller Peter Collins chief financial officer, replacing Charles Lesser. Days later, it was revealed that Kymberly Gold Lubell, a vice president with the company and Jeffrey Lubell's wife, would be leaving. Gold Lubell told WWD that she was leaving to launch a high-end jewelry line and also confirmed that the couple planned to separate.

An April 13 regulatory filing detailed the cost of these actions. Collins will receive a base salary of $325,000 and be eligible for a bonus of as much as 150 percent of that figure. Collins also received 50,000 shares of common stock and as much as $115,000 for expenses related to his relocation from Seattle to California.

Lesser has been retained as a consultant from March 26 through Sept. 26, receiving $20,833.33 per month, as well as a lump-sum payment of $340,000.According to the filing, Gold Lubell has a separation agreement with the company that granted her a lump sum of $675,000. She agreed to consult with True Religion "regarding the transition of her duties to other employees" for two years at a cost of $30,208.33 per month.

The company said it incurred a charge of $1.2 million during the quarter related to the two executive departures. Additional charges were recorded because of a change in accounting for restricted stock grant expenses.

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