True Religion Apparel Inc.’s direct-to-consumer business kept fueling the company’s earnings fires in the first quarter, as declines continued in its U.S. wholesale business.


For the three months ended March 31, the Vernon, Calif.-based premium denim label saw earnings gain 10.1 percent to $8.4 million, or 34 cents a dilute share, compared with earnings of $7.6 million, or 32 cents, in the same period a year ago.


“We are continuing to gain greater control over our destiny and evolve into a global lifestyle brand,” said Jeff Lubell, chairman and chief executive officer. “Also, we are encouraged by recent trends in our U.S. wholesale business as we transition to our direct sales team. With the continued execution on our key initiatives, we are on track to deliver another year of strong results in 2010.”


Sales for the quarter rose 22.4 percent to $77.9 million from $63.6 million, driven primarily by gains in the consumer direct segment and international sales. The consumer direct segment saw sales increase 68.1 percent to $38.8 million from $23.1 million. The company opened six branded stores during the quarter, finishing the period with 76 compared with 49 a year ago. Management intends to open 21 stores in the U.S. this year and its first international stores in Tokyo, London and Toronto.


International sales increased 22.8 percent to $13.8 million from $11.2 million. The U.S. wholesale business declined 16.5 percent to $24.2 million from $28.9 million. Management said sales to off-price retailers declined 26 percent and sales to major department stores and boutiques fell 12.4 percent, or $2.5 million.


Todd Slater, managing director and specialty retail, apparel and footwear analyst at Lazard Capital Markets, downgraded the stock to a “hold” rating from “buy” prior to the release of earnings. Slater argued that shares of the company had caught up to the strong performance the brand has exhibited over the last year, making them appropriately valued.


“We also note that every sell-side analyst has a ‘buy’ rating, a fact that increases the risk to the downside should sentiment turn sour,” said Slater in his report. “Therefore, with the stock more properly valued, we believe that the risk-reward no longer favors adding to positions at this time.”

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