True Religion Apparel Announces Third Quarter 2012 True Religion Apparel Announces Third Quarter 2012 Financial Results
Net sales increased 9.4% to $118.5 million
U.S. Consumer Direct net sales increased 5.7%; same-store sales decreased 4.7%
U.S. Wholesale net sales increased 35.4%, the segment’s third consecutive year-over-year quarterly increase
Diluted EPS were $0.49 as compared to $0.48 in Q3 2011
Board approves quarterly cash dividend of $0.20 per share
Company Updates Full Year 2012 Guidance
VERNON, Calif.--(BUSINESS WIRE)--Nov. 5, 2012-- True Religion Apparel, Inc. (Nasdaq: TRLG) today announced financial results for the quarter ended September 30, 2012.
Third Quarter 2012 Financial Results
Total net sales increased 9.4% to $118.5 million.
Net sales for the Company’s U.S. Consumer Direct segment, which includes the Company’s retail stores and E-commerce business, increased 5.7% to $65.3 million and accounted for 55.1% of the Company’s total net sales for the quarter. Third quarter same-store sales for the 101 stores open at least 12 full months and E-commerce decreased 4.7%. The Company opened three stores, ending the third quarter with 119 retail stores in the United States, compared to 105 as of September 30, 2011.
Net sales for the Company’s U.S. Wholesale segment totaled $29.8 million, a 35.4% increase as compared to the prior year quarter. This is the third consecutive year-over-year quarterly sales increase for this segment. The increase in this segment’s sales was due to increased sales to the Off-Price and Specialty Store channels.
Net sales for the International segment totaled $22.7 million, a 3.0% decrease as compared to the prior year quarter due primarily to a slowdown in wholesale sales in Korea and Germany. Partially offsetting this decrease was a 115% increase in international retail sales as a result of an increase in store count from 13 as of September 30, 2011 to 28 as of September 30, 2012. The Company opened five international stores in the third quarter of 2012.
Gross profit increased 6.9% to $75.0 million. The gross margin rate decreased 150 basis points to 63.3%, due primarily to an increased sales mix of discounted merchandise.
Selling, general and administrative (“SG&A”) expenses increased 11.7% to $56.2 million. The majority of the growth in the SG&A expenses was driven by the costs associated with operating 14 additional U.S. stores and 15 additional international stores in 2012 as compared to the same period in 2011. As a percentage of net sales, SG&A expenses were 47.4% in the third quarter of 2012. The third quarter 2011 SG&A expense as a percentage of net sales was 46.4%.
Operating income was $18.9 million or 15.9% of net sales in the third quarter of 2012. In the third quarter of 2011, operating income was $19.9 million. The decline in operating income is primarily attributable to the decrease in international wholesale sales.
The effective income tax rate for the third quarter of 2012 was 35.9% as compared to 37.5% in the third quarter of 2011.
Net income attributable to True Religion Apparel, Inc. for the third quarter of 2012 was $12.3 million, or $0.49 per diluted share based on weighted average shares outstanding of 25.3 million for the third quarter of 2012. For the third quarter of 2011, net income attributable to True Religion Apparel, Inc. was $12.1 million or $0.48 per diluted share based on weighted average shares outstanding of 25.0 million.
SG&A expenses for the third quarter of 2011 included $1.2 million in net separation costs associated with the resignation of a former executive. Excluding the 2011 net separation costs, the 2011 SG&A expenses were $49.0 million, or 45.2% of the 2011 net sales; the 2011 operating income was $21.2 million, or 19.5% of the 2011 net sales; the 2011 net income attributable to True Religion Apparel, Inc. was $12.9 million; and the 2011 diluted earnings per share was $0.51.
Management Comments
Jeffrey Lubell, Chairman, Chief Executive Officer and Chief Merchant of True Religion Apparel, Inc., stated, “We are pleased with the results we achieved in the third quarter and we continue to see the benefit of sales growth in the U.S. Wholesale segment and our continued retail expansion in the U.S. and international markets. While our same-store sales fell short of our expectations, we were able to exit the quarter with less slow-moving merchandise. This puts us in a strong position heading into the holiday season.”
Mr. Lubell concluded, “True Religion has a strong track record of sales growth and industry-leading profitability and we believe that the Company is well positioned for continued growth. We remain focused on executing our strategic plan: extending our powerful and differentiated brand, driving growth in U.S. Wholesale revenue, increasing our U.S. retail store base and expanding our international business. We are confident our plan will deliver results in the fourth quarter and in 2013 and continue to generate value for our shareholders.”
Year-to-Date 2012 Financial Results
Total net sales increased 9.9% to $330.2 million in the first nine months of 2012, from $300.4 million in the prior year period.
Gross profit increased 8.2% to $211.4 million in the first nine months of 2012, from $195.3 million in the prior year period. Gross margin decreased by 100 basis points to 64.0%.
SG&A expenses increased 9.2% to $158.7 million. The majority of the growth in the SG&A expenses was driven by the costs associated with operating additional U.S. and international retail stores in 2012 as compared to the same period in 2011. As a percentage of net sales, SG&A expenses were 48.0% in the first nine months of 2012.
Operating income for the first nine months of 2012 was $52.7 million or 16.0% of net sales. For the first nine months of 2011, operating income was $50.0 million.
For the first nine months of 2012, net income attributable to True Religion Apparel, Inc. was $32.5 million, or $1.29 per diluted share based on weighted average shares outstanding of 25.3 million. For the first nine months of 2011, net income attributable to True Religion Apparel, Inc. was $30.5 million or $1.22 per diluted share based on weighted average shares outstanding of 25.0 million.
The SG&A expenses for first nine months of 2011 included $1.5 million in litigation settlement expense and $1.2 million in separation costs associated with the resignation of a former executive. Excluding these 2011 costs, the 2011 SG&A expenses were $142.6 million, or 47.5% of the 2011 net sales; the 2011 operating income was $52.7 million, or 17.5% of the 2011 net sales; the 2011 net income attributable to True Religion Apparel, Inc. was $32.2 million; and the 2011 diluted per share was $1.29.
Balance Sheet and Liquidity
As of September 30, 2012, the Company had $51.4 million of cash and cash equivalents and $149.0 million of short and long-term investments, which combined equals $200.4 million. As of September 30, 2011, the Company had $182.2 million of cash and cash equivalents. The Company ended the quarter with no long-term borrowings. The inventory balance as of September 30, 2012 was $64.1 million, an 18.4% increase from September 30, 2011. This increase is primarily the result of an expanded retail store count from 118 retail stores at September 30, 2011 to 147 retail stores at September 30, 2012.
Net cash provided by operating activities for the first nine months of 2012 was $31.7 million compared to $48.7 million in the first nine months of 2011. This decrease in net cash provided by operating activities is primarily due to the increase in U.S. Wholesale sales in the third quarter of 2012 as compared to in the third quarter of 2011, which caused receivables to grow and cash receipts to be delayed in 2012 compared to 2011.
Store Openings
During the third quarter of 2012, True Religion Apparel opened three stores in the U.S., two stores in Canada, two stores in Germany, and one store in Austria. As of September 30, 2012, the Company operated 119 stores in the U.S. and 28 international stores. (For additional details on stores opened during the quarter, please refer to the Third Quarter 2012 Management Commentary posted on the Company's website, www.truereligionbrandjeans.com, in the Investor Relations section.)
Quarterly Dividend
The Company’s Board of Directors approved a quarterly dividend to our stockholders of $0.20 per share. The quarterly dividend will be paid on November 29, 2012, to all stockholders of record as of November 15, 2012. Future dividends will be subject to Board approval.
Guidance
Based upon our current assessment of market conditions and the Company’s recent performance, we are updating the Company’s guidance for the fourth quarter and the full year ended December 31, 2012, as follows:
Fourth quarter 2012 net sales are expected to be in the range of $128 million to $133 million.
Fourth quarter 2012 diluted earnings per share is expected to be in the range of $0.52 to $0.58, with an effective income tax rate of 37.5% and fully diluted weighted average shares outstanding of 25.6 million.
Full year 2012 net sales are expected to be in the range of $458 million to $463 million.
Full year diluted earnings per share is expected to be in the range of $1.80 to $1.86, with an effective income tax rate of 37.5% and fully diluted weighted average shares outstanding of 25.3 million.
We continue to assess the impact of Hurricane Sandy on our retail and wholesale operations in the Northeast. Of our 121 U.S. retail stores, 35 were closed for some part of last week, but we can now report that most of those stores have reopened. We continue to monitor the storm’s impact on consumer spending in the region and it may be several weeks before we have a clear assessment of the expected impact on our results of operations. Accordingly, we have not reflected in our guidance for the fourth quarter the storm’s impact on expected fourth quarter net sales and earnings per share. In addition, the Company’s guidance excludes the costs associated with its recently announced review of strategic alternatives.
Investor Conference Call
True Religion Apparel management will host a conference call to discuss the financial results and answer questions today at 11:00 a.m. ET.
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