Isaacs Hits Turning Point
Higher margins and lower costs helped I.C. Isaacs overcome sales declines and eke out a rise in earnings for the first quarter.

“We believe that the first quarter of 2006 marked the completion of our turnaround effort,” Peter Rizzo, chairman and chief executive officer, said in a statement. “We believe that 2006 will be the third straight profitable year for I.C. Isaacs and the best relative to earnings and revenue.”

For the three months ended March 31, the New York-based denim company, which holds the U.S. license for Marithé & François Girbaud, reported earnings increased 1.6 percent to $2.5 million, or 20 cents a diluted share, compared with earnings of $2.5 million, or 18 cents a share, in the same period a year ago.

Sales for the quarter fell 10.3 percent to $21.3 million from $23.7 million. The company said the sales decline was a result of pulling product from about 200 men’s and women’s department stores that management felt were underperforming. Exiting those doors was completed in 2005 and has been part of an effort to create a new brand image with consumers.

“We have worked diligently to move the Girbaud brand identity in the U.S. market away from what was previously a jeans and T-shirt business toward a younger, more sophisticated, street-collection concept,” said Rizzo.

Trading volume of Isaacs surged after the announcement of results on Tuesday, with shares finishing the day at $5.10, up 6.3 percent. Shares made significant gains on Wednesday as well, up 16.1 percent to close at $5.92 a share.

Guess Delays 1Q Results
Guess Inc. said Wednesday that an inquiry from the Securities and Exchange commission has delayed the release of first-quarter earnings.

The Los Angeles-based denim manufacturer had been scheduled to report its financial results for the quarter ended April 1, but is addressing an SEC letter regarding how the company accounted for the acquisition of its European jeanswear licensee on last year’s 10-K filing.

Guess said in a statement that first-quarter results are expected to be filed “on or before its due date of May 11.” Once a date is set, a conference call with analysts and investors will be scheduled.

This story first appeared in the May 4, 2006 issue of WWD. Subscribe Today.

Despite the delay, the company indicated that it anticipates reporting significantly improved earnings and sales results for the quarter. Earnings are expected to come in between $13.5 million and $15.0 million, or 30 cents and 33 cents a diluted share. That range positions the firm to achieve a minimum earnings gain of 64.4 percent and a potential maximum of 82.9 percent, compared with earnings of $8.2 million during the same period a year ago. The company also said its comparable-store sales for April were up 22.6 percent.

“The SEC letter is ill-timed but not material, in our opinion,” Eric Beder, a retail analyst with Brean Murray Carret & Co., said in a report after the announcement.

Beder said the SEC is questioning the classification as intangible assets of $12.3 million related to the purchase of Guess’ European distributor. Guess is amortizing the assets over five years and the financial results have been fully audited by KPMG, he said.

Beder increased his earnings per share estimates for 2006 to $1.70 from $1.59 based on the anticipated results. He also raised his EPS estimates for 2007 to $2.00 from $1.89.

“We believe that [Guess] deserves a premium multiple given the potential for material further international expansion, the company’s fashion-right looks for spring and additional unit growth potential at Marciano, the core stores and the Accessory units,” wrote Beder.

True Religion Mulls Going Private as Earnings Rise
True Religion Apparel is feeling underappreciated by Wall Street, which has management considering a change of faith.

During the Los Angeles-based premium denim manufacturer’s conference call Wednesday to discuss first-quarter earnings, management said it not only had considered taking the company private again, but it would welcome the opportunity.

Booming domestic sales and an increasingly strong response to nondenim items drove double-digit sales and earnings gains in the first quarter. Despite the strong results, which came on the heels of substantial gains in 2005, shares of the company have fallen from a high of around $24 in February to a closing price of $18.74 on Wednesday.

Talk of taking the company private was stirred by an analyst’s question as to whether that was an option that had been discussed, considering that True Religion’s shares had remained undervalued despite strong sales and earnings, the absence of debt and a substantial cash flow. Charles Lesser, chief financial officer, was quick to note that companies such as Seven For All Mankind and Citizens of Humanity had achieved success with their private-equity deals.

“We think that it might be a great idea if the right company came along and took the company private, allowed us to grow our stores for a few years, and then took it public again,” said Lesser. “We think that would be a great idea.”

For the three months ended March 31, the Los Angeles-based premium denim manufacturer reported a 68.9 percent rise in earnings to $6.5 million, or 28 cents a diluted share, besting Wall Street analysts’ consensus estimate of 27 cents. Earnings for the same period a year ago were $3.8 million, or 17 cents a share.

Sales for the quarter grew 77.1 percent to $35.6 million from $20.1 million, making for the highest quarterly sales results in the company’s history. The rapid growth was driven by gains with the company’s 200 department store and 650 specialty store customers, particularly in the U.S. market. According to management, department stores generated $10.4 million in sales, compared with $3.8 million in the same period a year ago, while specialty store sales were $15.7 million compared with $8 million.

“I think what is most important is that we demonstrated our leadership position in the market, not only here but overseas,” said Jeff Lubell, founder and chief executive officer, during the company conference call.

While denim has become a smaller portion of True Religion’s overall business, sales in the segment have continued to rise. Lubell pointed out that domestic sales growth had been achieved as major department and specialty store customers winnowed down the numbers of brands in their premium denim portfolios. Average wholesale prices have held steady at $72.

“It’s clear to me that the marketplace for premium denim is coming down to those people who really have the product line right and are really performing,” said Lubell, who pointed out that brands such as Paper Denim & Cloth, Joe’s Jeans, Blue Cult and Antik have lowered their price points to below $150 over the last year.

Nondenim offerings continue to become a bigger part of the company’s business. Fleece in particular has emerged as a key performer, selling 42,000 units during the quarter and generating sales of more than $3 million. Lubell said the company has gotten a strong response from their leather, suede, cashmere and shorts offerings as well. Denim accounted for 78 percent of sales during the quarter.

“It is the best evidence that we are transforming quickly from a denim brand to a casual fashion brand without limitations,” said Lubell.

In a report released on Tuesday previewing earnings, Brean Murray Carret retail analyst Eric Beder noted a combination of domestic growth and increased interest in premium denim from men as key factors fueling the company’s growth.

“We believe shipments of men’s bottoms to the channel (especially department stores) have become a much bigger piece of the mix. We note in the company’s owned stores, the sales mix is 50-50, men’s-women’s,” wrote Beder.

With no debt weighing down the balance sheet, the company has quickly amassed cash, with $21.2 million for the quarter compared with only $4.2 million in the year-ago period. The cash is earmarked to fund the opening of company-owned stores, which are expected to cost between $600,000 and $700,000, excluding inventory. Management plans to open three stores in 2006, and six to eight stores annually in the following years.
Ross Tucker

Curves Ahead at Sheiki Jeans
Sheiki Jeans is carving out a niche with slender yet curvy women.

Sheila Dudley, the designer of the collection, is also the acting fit model. Dudley, 5 feet, 5 inches, with a self-proclaimed “very curvy” frame, said she worked for nine months perfecting her fit.

She splits her time between Los Angeles, where Sheiki Jeans are washed and manufactured, and Las Vegas, where she designs the collection.

“The jeans are clingy, like a glove,” Dudley said, fresh off a flight to Los Angeles from Las Vegas. “I feel like a lot of denim brands target the narrow, straight figure, but that’s just not realistic.”

The collection, which launched for spring, can be found in specialty boutiques such as Stash in Las Vegas and online at Celebrities have already taken notice: Talk show hostess Tyra Banks will be seen wearing Sheiki Jeans in upcoming episodes of “The Tyra Banks Show.”

There are four distinct bodies in sizes 24 to 31: straight, boot-cut, flared and skinny. Each pair of jeans has a 34-inch leg with a 7 1/2-inch rise and is 12 1/2 inches around the knee. The denim is imported from Italy and washes range from a mid-range blue to gray, white, and black shades. Wholesale prices are $70 to $100.

The look is clean; embellishments and distressing are kept to a minimum. An embroidered, oversize “S” is on every back pocket. Back pockets are rounded and feature an exaggerated curve in the middle to round out the rear without making it appear wide.

“We basically do a butt-lift,” Dudley said of the curved yoke and pocket placement.

She also launched the Sheiki Diamond Collection, a special-order collection that features Swarovski crystals embellishment. The wholesale price range is between $300 and $500.
Lauren DeCarlo