Nollenberger Capital Research Report
TRUE RELIGION APPAREL, INC
(NASDAQ: TRLG $15.35)
Management Meeting Highlights; Maintaining Buy Rating
• Following time spent with True Religion management in New York yesterday, we continue to believe the quarter is shaping up well for the company and that product is selling through nicely. We maintain our belief that premium denim will be a strong holiday gift item and believe this is a positive for True Religion.
• We are excited about fleece product that has been added to True Religion’s collection. Fleece sweat suits began shipping this week, and we will be monitoring consumer response to the product in stores and boutiques over the next few weeks. We are optimistic about these items, as we noted a strong response
from buyers to the collection at the Coterie in New York.
• International revenue remains strong for True Religion, and we are optimistic that more distributors will be added in areas such as South America, Russia, and China. Japan continues to perform well, as the company is maintaining its leading position in the Japanese market. The new Super T product has been shipped to Japan.
• We are pleased to see what we believe is management’s conservative approach to guidance and believe the company has set very achievable targets for itself in the coming quarters going into spring of 2006. We continue to believe that the potential for international sales, sales of non-denim products, and sales of active wear could generate additional upside in 2006, and we will be looking for information on how
these products are selling at retail going forward.
• At $15.35, shares of True Religion are trading at 17.1x our 2005 EPS estimate of $0.89. We are forecasting 2006 EPS of $1.17. This would represent an increase in EPS of 31% Y/Y. Our $20 price target is based on a high fashion peer group multiple in the range of 13x to 38x. Applying a 17x multiple
to the shares, we arrive at our price target of $20.
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* At the Wedbush Morgan California Dreamin' investor conference today, True Religion's management team, including Jeff Lubell, President and CEO, and Charles Lesser, CFO, expressed confidence in the Holiday sell-thrus of True Religion products. The company noted Holiday sell-thrus have been very strong across retail channels and mentioned products including the "Miss Groovy" velvet jacket, velvet bottoms and the embroidered denim, are sold out in many stores throughout the country. In addition, the company mentioned that its first retail store, which opened in Manhattan Beach, CA last Friday, is experiencing very strong foot traffic and strong product sell-thrus. The company is exploring the opportunity of opening an additional 3-5 stores in 2006.
* Management highlighted that international expansion will represent a major growth vehicle for the company in 2006. In the meeting we attended this morning, management noted that they plan to enter 20 new countries in 2006, including expansion in Latin America and Asia (specifically China and Hong Kong). We estimate International business will comprise approximately 45% (roughly $46 million) of revenue for True Religion in 2005.
finance.messages.yahoo.com
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Snips from Friday's IBD article, a lengthy profile piece:
Last year, True Religion's sales jumped more than elevenfold to $28 million from $2.4 million in 2003. This year, its sales are expected to top $95 million, the company says.
The four-year-old company's made money in nine of its last 10 quarters. Its earnings catapulted 1,600%, 800% and 560% in the first three quarters of this year. This is after posting its first profit in the third quarter of 2003....
Lubell and Lesser say True Religion owes its success to three things: a crack sales force, an insistence on keeping production in the U.S. for quality control and an intense corporate culture where long hours and visible rewards are the norm.
Lubell's experience in the jeans business taught him that the right sales force often means the difference between success and failure.
For Lubell and Lesser, the right sales force is a well-informed one that acts as a brand ambassador to the retail boutiques that stock the jeans. They must grasp the strengths of the firm's jeans and why the products may appeal more than those made by another vendor.
After Lesser joined True Religion in July 2003 and had been on the job three weeks, he fired the sales force. He quickly cast about for people who had experience selling high-end jeans to the boutiques and luxury stores where True Religion wanted to go. He and Lubell wanted salespeople knowledgeable about finishes, seams and other details.
One of their biggest sales coups was hiring veteran premium jeans saleswoman Jana Rangel as their chief U.S. sales representative. "She took Earl Jeans, where she worked before, from a baby company to $28 million in sales in a short period," said Lubell. So when Rangel expressed an interest in joining True Religion, "I knew we were poised for success," Lubell said.
"She is very proficient about who our competition is in the marketplace. She knows how to make the customers buy, how to get the best impact with the brand and how to retail it," he said.
Rangel takes pains to educate salespeople in boutiques, routinely holding how-to-sell clinics for any vendor stocking the company's jeans.
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