Lauren Evans has found religion, but not in the spiritual sense.
Evans just bought her first pair of True Religion jeans. And while the $180 price was above her usual jeans budget, as far as she’s concerned they were well worth it.
She says the quality lives up to the hype she’s heard about the brand. The style is trendy enough that she expects to get a lot of wear out them.
“I just fell in love with them,” said Evans, of Louisville. “It’s the way they fit. I really felt like they made me look good.”
True Religion Apparel’s (NasdaqGS:TRLG - News) namesake jeans continue to strike a chord with consumers, despite a price tag of $172 to more than $300.
The maker of premium denim and related clothing has seen double-digit sales and earnings growth for seven straight quarters.
First-quarter profit jumped 10% to 32 cents a share, sailing past views. Sales rose 19% to $63.6 million.
Luxury Market Struggles
True Religion’s strong showing comes as the luxury market continues to struggle in this tough economy.
“They’ve done a great job hitting the fashion trends right,” said analyst Jeff Mintz of Wedbush Morgan. “And they have a core following of people who love their jeans. Their jeans have multiple uses. They can be worn anywhere. It’s a big part of what’s allowed them to continue to do well despite the slowdown.”
In addition to jeans, True Religion also makes non-denim items such as knit and woven sportswear, T-shirts and sweat shirts. And it has licensed products such as handbags and swimwear.
Chief Executive Jeffrey Lubell says a few factors have propelled the company’s growth: alluring products, an expanded retail presence in the U.S. via its own branded stores, and a growing business overseas.
On the product front, as it keeps coming out with innovative items, True Religion gives consumers a reason to buy its merchandise, Lubell said in an e-mail.
“I like to say it’s all about product,” he said.
True Religion constantly adds new embellishments to its jeans, including crystal buttons and metal studs, embroidered pockets and sequin logos on the fabric.
In sportswear, it recently added a line of vintage-style hoodies and T-shirts.
“If we don’t innovate, then others will copy us, and we’ll risk losing our loyal customers,” Lubell said. “Our fashion innovation allows us to cut through the market’s head winds.”
True Religion has gotten a big boost from its own branded U.S. retail stores, launched in 2007.
The stores showcase the breadth of its product line and help build the brand image.
They also help True Religion reach more consumers with more products.
Business at these stores has been sizzling. First-quarter sales at its consumer direct segment, which includes the branded stores and its e-commerce site, soared 95.8%.
More Stores
The segment’s growth was driven by retail store expansion, Chief Financial Officer Peter Collins said in a May 5 conference call. The number of stores rose to 49 at the end of the first quarter vs. 18 a year earlier.
True Religion has a U.S. wholesale business that sells its products to high-end department stores and about 900 specialty retailers and boutiques.
But the wholesale business has been struggling along with many of its customers. The segment’s first-quarter sales sank 11%.
Many of the boutiques that sell True Religion’s products are going out of business and having trouble paying vendors, Mintz says.
Lubell says the major department stores it sells to have more resources to withstand the decline in consumer spending.
“So our business is performing better with them in 2009 as compared to the boutiques,” he adds.
Still, business at department stores has been weak throughout the recession. They’ve cut back a lot on inventory levels, Mintz says.
True Religion’s own stores have performed well in a tough retail milieu, says Mintz, because a lot of them are based in locales where True Religion doesn’t have much wholesale distribution. So new customers are exposed to the brand.
Also, he adds, True Religion stores carry items you won’t find in department stores, such as the non-denim products.
Meanwhile, True Religion has been ramping up store expansion. As of June 16, it had 57 stores, up from 42 at the end of 2008 and 15 at the close of 2007. It plans to have 67 stores by year-end.
The branded stores are good for the company overall, says analyst Ron Bookbinder of Global Hunter Securities.
“The margins on company-owned stores are terrific,” he said. They’re able to capture the entire margin of the distribution from the sourcing costs to the full retail price.”
He figures the branded stores have a gross margin of 80% and an operating margin above 35%.
While its wholesale business generates the most sales, True Religion is getting smaller as the branded store business gets bigger, Mintz says.
Mintz estimates that U.S. wholesale will account for 40% of sales in 2009, compared with 57% in 2008.
True Religion’s international business sells its products to department stores and boutiques in more than 50 countries, including Japan, Spain and China.
Sales Increase
The segment’s first-quarter sales climbed 26% to $11.2 million, driven by increased sales to Japan and to European and North American distributors, according to CFO Collins.
Still, analysts expect the company’s earnings to slip 2% to $1.79 a share in 2009 amid the weak economy. They expect a rebound of 13% to $2.03 a share in 2010.
Lubell says his growth strategy, first and foremost, is to develop innovative merchandise.
“We want to lead the market, not follow trends,” he said.
Mintz sees the company continuing to buck the downturn as long as it does well on the fashion side.
“Product is everything to their ability to outperform,” he said.
True Religion will keep opening new branded stores to connect with more consumers in the U.S., Lubell says.
“And we see the international market for our merchandise as larger than the domestic opportunity,” he added. “So we’ll invest globally to present our collection to more consumers” in both the wholesale accounts and True Religion stores.
Copyright © 2009 The Newbury Line
