Strong growth in its retail operations and overseas allowed True Religion Apparel Inc. to brush aside a sharp decline in its U.S. wholesale business and post double-digit increases in second-quarter sales and profits.

This story first appeared in the July 29, 2011 issue of WWD. Subscribe Today.

For the three months ended June 30, the Vernon, Calif.-based marketer of upscale denim and sportswear generated net income of $9.4 million, or 38 cents a share, 25.2 percent higher than the prior-year total of $7.5 million, or 30 cents.

Sales in the quarter were up 19.6 percent to $98.3 million from $82.2 million in the 2010 quarter as gross margin escalated to 65.5 percent of sales from 64.1 percent.

Analysts, on average, expected earnings per share of 34 cents on sales of $91.5 million. Reacting to the news, shares of True Religion shot up 8 percent, to $32.10, in the first hours of after-hours trading.

A 41.9 percent increase in U.S. consumer direct sales, to $58.8 million, coupled with a 31.4 percent increase in international sales, to $18.1 million, more than offset an 18.2 percent decline in U.S. wholesale volume, down to $21 million. Same-store sales, which include e-commerce, rose 14.8 percent

U.S. direct sales now account for 59.9 percent of the company total, versus 50.4 percent a year ago, and international’s share rose to 18.4 percent from 16.8 percent. Meanwhile, U.S. wholesale’s portion of revenues dropped to 21.4 percent from 31.2 percent.

The decline in the U.S. wholesale segment was attributed to “our challenging sales trend for women’s denim in the major department store channel.” Also, sales to off-price retailers were reduced, according to the company’s strategic plan for the year. Sales to specialty stores, however, rose for the fifth consecutive quarter.

Jeffrey Lubell, chairman, chief executive officer and chief merchant of the company, told WWD, “We need to wipe out the off-price channel altogether, move products to our own outlet stores. We’ve done a better job of managing and keeping the integrity of our inventory and products, and that’s helped us with the specialty stores.”

Department stores remain a challenge. “They’re focused on selling product at $150 to $175, and we’re in a different league in our own stores, selling products for much higher,” he said. “They need more compelling products and they need to take risks. They have the balance sheet for support that, and so do we.”

He cited strong sell-throughs — 38 percent in one recent week — in True Religion stores on its vintage collection, as well as improved sell-in to a number of European retailers, “some of the customers we had lost in Italy, France and Spain.”

Twelve additional stores are planned for the balance of the year, including four outside the U.S. That would bring the firm’s store count to 114.

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