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True Religion Apparel (TRLG)

Q1 2010 Earnings Call

May 4, 2010 4:30 pm ET


Laura Miller - ICR

Michael Buckley - President

Jeff Lubell - Chairman, CEO & CM

Pete Collins - CFO

Lynne Koplin - COO


Eric Beder - Brean Murray

Todd Slater - Lazard Capital Markets

Christine Chen - Needham & Company

Eric Tracy - FBR Capital Markets

Ronald Bookbinder - Global Hunter Securities

Dorothy Lakner - Caris & Company



Greetings and welcome to the True Religion Apparel Inc. 2010 first quarter earnings conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator’s instructions) As a reminder this conference is being recorded.

It is now pleasure to introduce to your host, Laura Miller, of ICR. Thank you, Ms. Miller, you may now begin.

Laura Miller

Thank you. Good afternoon everyone and thank you for joining us today to discuss True Religion Apparel’s first quarter 2010 financial results. By now everyone should have access to the earnings release, which went out today at approximately 4:00 pm Eastern Time. If you have not received the release, it is available on the Investor Relations portion of True Religion’s website at by clicking on the investor relations tab.

This call is being webcast and the replay will be available and archived on the company’s website. Please note that all of the information discussed on the call today is covered under the Safe Harbor provision of the Private Securities Litigation Reform Act. We caution listeners that during this call True Religion management will be providing financial guidance and making other forward-looking statements regarding future financial results and business opportunities.

The company’s actual future results maybe very different from our current expectations. We encourage you to read the 2009 10-K, the upcoming 2010 first quarter 10-Q and other reports that we filed periodically with the SEC. These documents contain a discussion of the risks facing our business including factors that could cause these forward-looking statements to not come true. The company does not currently intend to update these forward-looking statements except as required by law.

With that said, it is my please to turn the call over to True Religion’s Chairman, Chief Executive Officer and Chief Merchant, Jeff Lubell.

Jeff Lubell

Thank you, Laura and good afternoon everyone. Thank you for joining us today as we discuss our financial results for the first quarter of 2010. On the call with me today are Michael Buckley, our President; Pete Collins, our Chief Financial Officer; and Lynne Koplin, our Chief Operating Officer.

In the first quarter of 2010, our Consumer Direct US Wholesale and international businesses performed well. Generating net sales of $77.9 million, an increase of 22% over last year’s first quarter. Our Consumer Direct business, now our largest segment once again led the way with a 68.1% sales increase, which exceeds our expectations.

We opened six stores in the first quarter, including five full priced stores and one outlet store and we continued to plan for 27 openings this year in the United States. Our international business also generated a strong double-digit sales increase with sales to both Europe and Asia we within the growth. In fact, our net sales to each of our top 10 international countries posted year-over-year increases in the first quarter.

Our US Wholesale, net sales were $24.2 million, down 16.5% from the $28.9 million in the same quarter last year. Our sales to off price accounts declined $2.3 million, or 26% versus last year, which is consistent with our plan of $10 million reduction in 2010. We also had a 12.4% decline in sales to mattress and booties, which was slightly better than our expectations for the sales channel. Also our Q2 order book for the US Wholesale segment is higher than it was last year. Pete will provide more details on his comments.

Our net income in the first quarter of 2010 improved by 10%; for our Consumer Direct segments, operating margin increased by 190 basis points over the results in the first quarter of 2009. We had overall margin pressure in the quarter resulting primarily from the plant expense increases due to improve the wholesale business and to continue to drive long-term international growth.

We’re pleased with each of our businesses in the quarter and with that initial productivity of the investments’ strategies, which we have recently implemented. We will combine the Consumer Direct sales increase to strong and broad increases in our international sales and our full priced it was also backlog gain, we are more confident about the direction of the True Religion brand.

Also these trends validate our growth strategy. We’re into develop trend setting merchandise, continue our growth in Consumer Direct we’re close to US Wholesale accounts and increased our international presence to serve the international marketplace, which we believe one day exceed our domestic market. Our financial position improved in the quarter as we increased our cash and cash equivalents, reduced our receivables and limited our year-over-year inventory growth to a rate below our net sales increase. Our capital expenditures to open branded source we pay for via operating cash flow.

We were on schedule to open 27 stores in the United States this year. Also we will open stores in the international market with stores in Tokyo, London, and Toronto. The Tokyo and London source have both set to open this month and the Toronto store is expected to open in the fourth quarter. Overall, we feel we are off to a good start in 2010, I am pleased by what I see from the changes we have made here over the past two quarters specifically at with the addition of (Inaudible), the US Wholesales sales team and our Asia Pacific team.

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