True Religion Apparel, Inc. (Nasdaq: TRLG) today announced financial results for the quarter and year ended December 31, 2012.

Fourth Quarter 2012 Financial Results

  • Total net sales increased to $137.0 million, or 14.8%, compared with the same period in 2011.
  • Net sales for the Company's U.S. Consumer Direct segment, which includes the Company's branded stores and e-commerce business, increased 11.8% to $86.4 million compared with the same period in 2011, and accounted for 63.1% of the Company's total net sales for the quarter. Fourth quarter same-store sales for the 107 stores open at least 12 full months and e-commerce increased 1.5% compared to the same period in 2011. The Company operated a total of 122 branded stores in the United States as of December 31, 2012, compared to 109 as of December 31, 2011.
  • Net sales for the Company's U.S. Wholesale segment increased 14.1% to $25.5 million compared to the prior year quarter driven by growth in the Specialty Store and Off-Price channels.
  • Net sales for the International segment totaled $24.2 million, a 27.8% increase as compared to the prior year quarter. The segment's increase was driven by an 85.2% increase in international retail sales as a result of an increase in store count from 16 at December 31, 2011 to 30 at December 31, 2012. The Company opened two international stores in the fourth quarter of 2012.
  • Gross profit increased 15.1% to $88.1 million, driven primarily by overall sales growth. The gross margin rate increased 20 basis points to 64.3%, aided by gross margin expansion in the U.S. Wholesale and U.S. Consumer Direct segments.
  • Selling, general and administrative ("SG&A") expenses increased 20.9% to $62.7 million from $51.9 million in the prior year quarter, and as a percentage of net sales increased to 45.8% from 43.4% in the same quarter a year ago. The dollar increase in SG&A expenses was driven by the costs associated with operating 13 additional U.S. stores and 14 additional international stores in 2012 as compared to the same period in 2011. Excluding $0.9 million of incremental costs associated with the review of strategic alternatives, the SG&A expenses would have been 45.1% of net sales for the fourth quarter of 2012.
  • Operating income totaled $25.4 million, up 3.0% from the fourth quarter of last year. Operating margin was 18.5% in the fourth quarter of 2012 versus 20.7% in the fourth quarter of 2011. The costs associated with the review of strategic alternatives reduced the quarter's operating margin by 70 basis points.
  • The effective tax rate for the quarter was 45.7% as compared to 38.4% in the fourth quarter of 2011. The fourth quarter 2012 effective tax rate increased primarily because the Company chose not to transfer certain international assets and functions as this would have added complexity to our supply chain. That transfer would have allowed the Company to utilize tax loss carryforwards, which have now been offset by valuation allowances.
  • Net income attributable to True Religion Apparel, Inc. decreased to $13.5 million, or $0.53 per diluted share based on weighted average shares outstanding of 25.6 million, as compared to $14.5 million, or $0.57 per diluted share based on weighted average shares outstanding of 25.3 million in 2011.
  • Excluding the costs associated with the review of strategic alternatives described above, adjusted net income attributable to True Religion Apparel, Inc. was $14.0 million, or $0.55 per diluted share for the fourth quarter of 2012.

Management Comments

"We finished the fourth quarter with double digit sales increases in our three key segments. And, we expanded our gross margin in our domestic consumer direct and wholesale segments. These two segments combined for 82% of our net sales this quarter," stated Jeffrey Lubell, Chairman, Chief Executive Officer and Chief Merchant of True Religion Apparel, Inc. "As we start 2013, our plan is to enhance our men's merchandise offering with sportswear innovation and re-establish the True Religion Brand Jeans women's collection with updated, well-edited core basic denim bottoms and fashion-forward concepts."

Year Ended 2012 Financial Results

  • Total net sales for the year ended December 31, 2012 increased to $467.3 million, an 11.3% increase as compared to the year ended December 31, 2011. Net sales for the Company's U.S. Consumer Direct segment increased 12.0% to $281.6 million, and same-store sales for the year ended 2012 increased 2.7%. Net sales for the Company's U.S. Wholesale segment totaled $99.2 million, a 15.0% increase as compared to the prior year, driven by increases in sales to the Off-Price and Specialty Store channels, which was partially offset by a decrease in sales to Major accounts. Net sales for the Company's International segment for the year increased to $83.8 million, or 6.1% as compared to the year ended December 31, 2011.
  • Gross profit increased 10.2% to $299.5 million, and gross margin decreased by 70 basis points to 64.1% as compared to the year ended December 31, 2011.
  • SG&A expense increased 12.3% to $221.4 million from $197.2 million in the prior year, and as a percentage of net sales increased to 47.4% from 47.0% in the prior year. The increase primarily reflects the opening and operating of 28 new branded stores in 2012. Included in SG&A for the year ended December 31, 2012 were costs associated with the review of strategic alternatives of $1.0 million. Included in SG&A for the year ended December 31, 2011 were net separation costs of $1.2 million associated with the resignation of a former executive.
  • Operating income increased 4.7% to $78.1 million, or 16.7% of net sales, versus $74.6 million or 17.8% of net sales in the prior year.
  • Net income attributable to True Religion Apparel, Inc. was $46.0 million, or $1.82 per diluted share based on weighted average shares outstanding of 25.3 million, as compared to $45.0 million, or $1.80 per diluted share based on weighted average shares outstanding of 25.0 million in the prior year.
  • Excluding the costs associated with the review of strategic alternatives and separation costs described above, 2012 adjusted net income attributable to True Religion Apparel, Inc. was $46.6 million, or $1.84 per diluted share, compared to $45.7 million, or $1.83 per diluted share in 2011.

Balance Sheet and Liquidity

As of December 31, 2012, the Company had $76.8 million of cash and cash equivalents and $140.8 million of short and long-term investments, which combined equals $217.6 million. As of December 31, 2011, the Company had $200.4 million of cash and cash equivalents. The Company paid its regular fourth quarter dividend, aggregating $5.2 million, on December 27, 2012, which impacted cash balances at December 31, 2012. The Company ended the year with no long-term borrowings. The inventory balance as of December 31, 2012 was $65.7 million, a 23.1% increase from December 31, 2011. This increase is primarily the result of an expanded retail store count from 125 retail stores at December 31, 2011 to 152 retail stores at December 31, 2012.

Net cash provided by operating activities was $64.1 million in 2012 compared to $71.8 million in 2011. This decrease in net cash provided by operating activities is primarily due to the increase in U.S. Wholesale sales in the fourth quarter of 2012 as compared to in the four quarter of 2011, which caused receivables to grow and cash receipts to be delayed in 2012 compared to 2011. The timing of payments from International wholesale customers also impacted the growth in receivables.

Store Openings

During the 2012 fourth quarter, True Religion Apparel opened three stores in the U.S. and two stores in Canada. As of December 31, 2012, the Company operated 122 stores in the U.S. and 30 international stores.

Review of Strategic Alternatives

In October, 2012, the Company announced that the Board of Directors has formed a Special Committee comprised of its non-management directors to explore and evaluate potential strategic alternatives available to the Company. The review by the Special Committee is continuing. No decision has been made to engage in a transaction or transactions, and there can be no assurance that any transaction or any other strategic alternative will occur or, if undertaken, the terms or timing thereof.

First Quarter and Full-Year 2013 Guidance

For the full year ended December 31, 2013 the Company expects:

  • Net sales to be between $509 million and $513 million
  • Diluted EPS to be between $1.89 and $1.95

The Company's 2013 net sales guidance is based on the following assumptions:

  • Net sales within the Company's U.S. Consumer Direct segment are forecasted to grow approximately 8% to 9% compared to 2012. This growth assumes 14 new retail stores in 2013 and the full year impact of the 14 stores opened in 2012. Same store sales are expected to be in the range of flat to up in the low single digits.
  • Net sales in the Company's U.S. Wholesale segment are expected to increase slightly compared to 2012. Off-Price channel sales are expected to be flat compared to 2012.
  • The International segment's net sales are forecasted to grow approximately 20% as compared to 2012 primarily due to the full year impact of 14 stores opened in 2012 and five to eight new stores in 2013.

The Company's 2013 EPS guidance reflects fully diluted weighted average shares outstanding of approximately 25.6 million and an effective tax rate of 38.8%.

For the first quarter of 2013 the Company expects:

  • Net sales to be in the range of $113 million to $114 million
  • Diluted EPS to be between $0.33 and $0.35

The Company's first quarter net sales guidance is based on the following assumptions:

  • Net sales in the U.S. Consumer Direct segment are forecasted to grow in the mid single digit range compared to the first quarter 2012 primarily driven by new store growth. Same store sales are expected to range between slightly negative and flat in the first quarter.
  • Net sales in the U.S. Wholesale segment are expected to increase slightly as compared to the first quarter of 2012. Off-Price channel sales are expected to be flat compared to 2012.
  • The International segment's net sales are forecasted to increase by approximately 10%.

The Company's first quarter 2013 EPS guidance reflects fully diluted weighted average shares outstanding of approximately 25.6 million and an effective tax rate of 38.8%.

Investor Conference Call

True Religion Apparel management will host a conference call to discuss the financial results and answer questions today at 4:30 p.m. ET. The conference call will be available to all interested parties through a live webcast at www.truereligionbrandjeans.com and www.earnings.com. Please visit one of these Web sites at least 15 minutes prior to the start of the call to register and download any necessary software. For those unable to listen to the live broadcast, the call will be archived and available online at both sites. A telephone replay of the call will be available for approximately one month following the conclusion of the call by dialing (877) 870-5176 (domestic) or (858) 384-5517 (international) and entering conference identification: 407926. Please note participants must enter the conference identification number in order to access the replay.

Management Commentary

A detailed financial commentary from the Company's management will be posted on the Company's website, www.truereligionbrandjeans.com, in the Investor Relations section.

About True Religion Apparel, Inc.

True Religion Apparel, Inc. is a growing, design-based jeans and jeans-related sportswear brand. The Company designs, manufactures and markets True Religion Apparel products, including its premium True Religion Brand Jeans. Its expanding product line, which includes high-quality, distinctive styling and fit in denim, sportswear, and licensed products, may be found in the Company's branded retail and outlet stores as well as contemporary department stores and boutiques in 50 countries on six continents. As of December 31, 2012, the Company owned and operated 122 branded retail and outlet stores in the United States and 30 international stores. For more information, please visit www.truereligionbrandjeans.com.

 
Q4 2012 Segment Results
(Dollar amounts in thousands)
(unaudited)
     
Three Months Ended December 31, Year Ended December 31,
    % Increase/     % Increase/
Net Sales: 2012 2011 (Decrease) 2012 2011 (Decrease)
U.S. Consumer Direct $ 86,439 $ 77,309 11.8% $ 281,583 $ 251,334 12.0%
U.S. Wholesale 25,545 22,380 14.1% 99,215 86,268 15.0%
International 24,220 18,953 27.8% 83,824 78,974 6.1%
Core Services   838   767 9.3%   2,663   3,222 (17.3)%
Total net sales $ 137,042 $ 119,409 14.8% $ 467,285 $ 419,798 11.3%
 
  Three Months Ended December 31,     Year Ended December 31,
2012   2011 2012   2011
Gross   Gross Gross   Gross
Gross Profit: Amount Margin   Amount Margin Amount Margin   Amount Margin
U.S. Consumer Direct $ 60,060 69.5% $ 53,412 69.1% $ 197,328 70.1% $ 178,341 71.0%
U.S. Wholesale 12,854 50.3% 10,935 48.9% 50,452 50.9% 44,445 51.5%
International 14,366 59.3% 11,412 60.2% 49,080 58.6% 45,821 58.0%
Core Services   838 100.0%   767 100.0%   2,663 100.0%   3,222 100.0%
Total gross profit $ 88,118 64.3% $ 76,526 64.1% $ 299,523 64.1% $ 271,829 64.8%
 
Three Months Ended December 31, Year Ended December 31,
2012   2011 2012   2011
Operating Operating Operating Operating
Operating Income: Amount Margin   Amount Margin Amount Margin   Amount Margin
U.S. Consumer Direct $ 29,096 33.7% $ 27,264 35.3% $ 93,726 33.3% $ 88,453 35.2%
U.S. Wholesale 11,430 44.7% 9,416 42.1% 44,333 44.7% 37,116 43.0%
International 1,934 8.0% 2,762 14.6% 7,895 9.4% 15,927 20.2%
Core Services   (17,069) NM   (14,783) NM   (67,837) NM   (66,885) NM
Total operating income $ 25,391 18.5% $ 24,659 20.7% $ 78,117 16.7% $ 74,611 17.8%
 

This press release contains forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Among these forward looking statements are our 2013 Guidance, forecasted store openings for 2013, statements regarding our ongoing strategic review and expected operating and financial performance and the other statements contained in this press release addressing our plans, expectations, future financial condition and results of operations. These forward-looking statements are not historical facts and are inherently uncertain and outside of our control. Any or all of our forward-looking statements in this press release may turn out to be wrong. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Actual future results may vary materially. Factors that may cause our plans, expectations, future financial condition and results to change are described in our Annual Report on Form 10-K, Reports on Form 10-Q and our other filings with the SEC, and include: the current downturn in the global economy and in particular, the decline in consumer spending generally and in the apparel industry more specifically; the Company's ability to predict fashion trends; the Company's ability to continue to maintain its brand image and reputation; competition from companies with significantly greater resources than ours; and the Company's ability to continue and manage its expansion plans.

 
TRUE RELIGION APPAREL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, expect per share data)
 
  Three Months Ended     Year Ended
December 31,

  December 31,  

2012   2011

 2012 

  

 2011 

Net sales $ 137,042   $ 119,409 $ 467,285   $ 419,798
Cost of sales   48,924     42,883   167,762     147,969
Gross profit 88,118 76,526 299,523 271,829
Selling, general and administrative expenses   62,727     51,867   221,406     197,218
Operating income 25,391 24,659 78,117 74,611
Other expense (income), net   (16)     868   (94)     637
Income before provision for income taxes 25,407 23,791 78,211 73,974
Provision for income taxes   11,609     9,127   31,513     28,197
Net income 13,798 14,664 46,698 45,777
Less: Net income attributable to redeemable noncontrolling interest   317     198   683     810
Net income attributable to True Religion Apparel, Inc. $ 13,481   $ 14,466 $ 46,015   $ 44,967
 
Earnings per share attributable to True Religion Apparel, Inc.:
Basic $ 0.54   $ 0.58 $ 1.83   $ 1.81
Diluted $ 0.53   $ 0.57 $ 1.82   $ 1.80
 
Weighted average shares outstanding:
Basic   25,179     24,930   25,122     24,856
Diluted   25,585     25,308   25,328     25,026
 
 
TRUE RELIGION APPAREL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except par value amounts)
 
  December 31,     December 31,
2012 2011
ASSETS
Current Assets:
Cash and cash equivalents $ 76,831 $ 200,366
Short-term investments 109,317 -
Accounts receivable, net of allowances 31,647 23,959
Inventories 65,655 53,320
Deferred income tax assets 7,293 7,027
Prepaid income taxes 5,359 3,879
Prepaid expenses and other current assets   10,123   12,137
Total current assets 306,225 300,688
Property and equipment, net 61,565 53,698
Long-term investments 31,517 -
Deferred income tax assets 1,383 1,271
Other assets   5,026     4,496
 
TOTAL ASSETS $ 405,716 $ 360,153
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 30,868 $ 22,872
Accrued salaries, wages and benefits 11,383 11,506
Income taxes payable   5,060   6,538
Total current liabilities   47,311   40,916
Long-Term Liabilities:
Long-term deferred rent 17,517 13,986
Long-term deferred income tax liabilities 3,662 2,224
Long-term income taxes payable   916   604
Total long-term liabilities   22,095   16,814
Total liabilities   69,406   57,730
 
Redeemable noncontrolling interest   3,375   2,635
 
Stockholders' Equity:

Preferred stock, $0.0001 par value, 20,000, shares authorized, no shares issued and outstanding

- -

Common stock, $0.0001 par value, 80,000 shares authorized, 25,723 and 25,492 issued and outstanding, respectively

3 3
Additional paid-in capital 89,287 77,950
Retained earnings 241,985 221,122
Accumulated other comprehensive income, net   1,660   713
 
Total stockholders' equity   332,935   299,788
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 405,716 $ 360,153
 
 
TRUE RELIGION APPAREL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
 
  Year Ended

December 31,

2012    

  2011  

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 46,698 $ 45,777
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 13,373 12,750
Provision for bad debts 677 1,209
Stock-based compensation 10,990 10,736
Tax benefit from stock-based compensation 347 746
Excess tax benefit from stock-based compensation (454) (1,196)
Deferred income taxes 1,058 1,396
Impairment of property and equipment 1,173 1,353
Other, net 556 86
Changes in operating assets and liabilities:
Accounts receivable (8,205) 2,600
Inventories (12,265) (11,723)
Prepaid expenses and other current assets 2,511 (1,884)
Other assets (291) (311)
Accounts payable and accrued expenses 7,315 6,959
Accrued salaries, wages and benefits (147) 2,010
Prepaid income taxes and income taxes payable (2,704) (1,444)
Long-term deferred rent   3,463   2,704
Net cash provided by operating activities   64,095   71,768
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments (214,309) -
Proceeds from maturities or sales of investments 73,047 -
Purchases of property and equipment (21,994) (20,676)
Other, net   (512)   (93)
Net cash used in investing activities   (163,768)   (20,769)
 
CASH FLOWS FROM FINANCING ACTIVITIES:
Statutory tax withholding payment for stock-based compensation (4,569) (5,479)
Cash dividends paid (20,151) -
Excess tax benefit from stock-based compensation   454   1,196
Net cash used in financing activities   (24,266)   (4,283)
 
Effect of exchange rate changes in cash   404   (142)
 
Net (decrease) increase in cash and cash equivalents (123,535) 46,574
Cash and cash equivalents, beginning of period   200,366   153,792
Cash and cash equivalents, end of period $ 76,831 $ 200,366
 
 
TRUE RELIGION APPAREL, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP TO ADJUSTED RESULTS
(Amounts in thousands, except earnings per share data)
(Unaudited)
 
    Quarter Ended December 31, 2012
    Net income  
Selling, general attributable to
& administrative Operating True Religion Diluted earnings
Expenses income Apparel, Inc. per share (c)
As reported (GAAP) $ 62,727 $ 25,391 $ 13,481 $ 0.53
Strategic review (a)   (871 )   871   543   0.02
As adjusted (d) $ 61,856   $ 26,262 $ 14,024 $ 0.55
 
 
Year Ended December 31, 2012
Net income
Selling, general attributable to
& administrative Operating True Religion Diluted earnings
Expenses income Apparel, Inc. per share (c)
As reported (GAAP) $ 221,406 $ 78,117 $ 46,015 $ 1.82
Strategic review (a)   (988 )   988   616   0.02
As adjusted (d) $ 220,418   $ 79,105 $ 46,631 $ 1.84
 
Year Ended December 31, 2011
Net income
Selling, general attributable to
& administrative Operating True Religion Diluted earnings
Expenses income Apparel, Inc. per share (c)
As reported (GAAP) $ 197,218 $ 74,611 $ 44,967 $ 1.80
Separation costs (b)   (1,237 )   1,237   766   0.03
As adjusted (d) $ 195,981   $ 73,374 $ 45,733 $ 1.83
 
  (a)   Strategic review costs represent those incremental professional fees and Special Committee fees that are directly attributable to our review of strategic alternatives.
(b) Separation costs associated with the resignation of a former executive ($2.9 million in separation costs offset by $1.7 million of accrued bonus and share-based compensation).
(c) Based on diluted weighted shares outstanding of 25.6 million and 25.3 million in Q4 2012 and Q4 2011, respectively, and 25.3 million and 25.0 million in 2012 and 2011, respectively.
(d) Management uses adjusted net income, and its components, among other factors, to measure the performance of the overall Company. Further, we believe that investors' understanding of our performance is enhanced by disclosing these measures. Adjusted net income and its components and adjusted diluted EPS measures are not, and should not be viewed as, substitutes for U.S. generally accepted accounting principles (GAAP) net income and its components and diluted EPS.

True Religion Apparel, Inc.
Pete Collins, Chief Financial Officer, 323-266-3072
or
Investor Relations:
ICR, Inc.
Joe Teklits/Jean Fontana, 646-277-1214