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Details on Industry Insight.
Q2 ‘10 net sales increased 14% year-over-year to $82.2 million
In its largest segment, U.S. Consumer Direct, sales increased 47% versus Q2 ‘09
Q2 ’10 earnings per share were $0.30, including $0.12 of separation costs
Q2 ’10 adjusted earnings per share were $0.42 versus EPS of $0.45 in Q2 ‘09
VERNON, Calif.--(BUSINESS WIRE)--True Religion Apparel, Inc. (Nasdaq: TRLG - News) today announced financial results for the three and six months ended June 30, 2010.
Second Quarter 2010 Financial Results
Total net sales were $82.2 million, an increase of 14.0% as compared to $72.1 million in the second quarter of 2009.Net sales for the Company’s U.S. Consumer Direct segment, which includes the Company’s branded retail stores and e-commerce site, increased 47.2% to $41.5 million as compared to $28.2 million in the prior year period. Second quarter same-store sales for the 56 stores open at least 12 months increased 6.7%. The Company operated 81 branded stores as of June 30, 2010, compared to 59 as of June 30, 2009. The U.S. Consumer Direct segment’s net sales equaled 50.5% of the Company’s total net sales in the second quarter of 2010.
Net sales for the Company’s U.S. Wholesale segment totaled $25.7 million, a 16.7% decrease as compared to $30.8 million in the prior year period. The Company’s sales to full-price accounts decreased 13.3%, which exceeded our plan. Net sales to Majors were below plan, but the boutiques channel achieved increased net sales for the first time in nine quarters. Also, the Company’s net sales to the off-price channel decreased by $2.3 million, or 24.7% which is consistent with our 2010 business plan.
Net sales for the Company’s International segment increased 14.1% to $13.8 million as compared to $12.1 million in the prior year period.
Net sales included $1.2 million of licensing revenue as compared to $1.0 million in the same period last year.
Gross profit was $52.7 million, or 64.1% of net sales, compared to $44.8 million, or 62.1% of net sales, in the second quarter of 2009. The overall improvement in gross margin was primarily due to the ongoing sales mix shift toward the Company’s higher-margin U.S. Consumer Direct segment.
Selling, general and administrative (“SG&A”) expense increased 51.5% to $40.7 million as compared to $26.9 million in the prior year period. As a percentage of net sales, SG&A increased to 49.5% from 37.3% in the same period a year ago. The majority of the year-over-year growth in SG&A expenses was driven by the costs associated with operating 22 additional stores in the second quarter of 2010 as compared to the same period in 2009, as well as $4.5 million ($2.9 million net of income tax or $0.12 per diluted share) of separation costs. In addition, SG&A expenses for the Company’s U.S. Wholesale and International segments increased primarily due to additional spending to support company-wide growth plans, including opening the Company’s first international full-price retail stores in Tokyo and London. SG&A excluding the separation costs would have been $36.2 million, or 44.0% of net sales.
Operating income decreased 33.2% to $12.0 million as compared to $17.9 million in the prior year period. Operating income was 14.6% of net sales in Q2 2010 versus 24.9% in Q2 2009. The U.S. Consumer Direct segment’s operating margin increased by 70 basis points due to greater leverage from the same-store sales increase. Operating margins were primarily impacted by costs associated with the former president’s separation agreement, as well as the U. S. Wholesale sales decrease and other spending to support company-wide growth plans. Operating income excluding the separation costs would have been $16.5 million or 20.1% of net sales.
The effective tax rate for the quarter was 37.1% as compared to 38.8% in the second quarter of 2009.
Net income decreased 31.4% to $7.5 million, or $0.30 per diluted share based on weighted average shares outstanding of 24.7 million, as compared to $11.0 million, or $0.45 per diluted share based on weighted average shares outstanding of 24.1 million in the 2009 second quarter. Net income excluding separation costs would have been $10.4 million, or $0.42 per diluted share for the second quarter 2010.
“We continued the positive sales momentum of the beginning of the year into the second quarter. Our U.S. Consumer Direct segment achieved same-store sales growth of 6.7%, which improved operating margins for that business. And, our overall top line growth reflects the strength of our global lifestyle brand both domestically and internationally,” stated Jeffrey Lubell, Chairman, Chief Executive Officer and Chief Merchant of True Religion Apparel, Inc.
“During the quarter we continued to invest in the growth of our international businesses by opening full-price stores in Tokyo and London and establishing a joint venture in a key part of Europe, which was finalized last month. I am pleased with the progress of our international expansion efforts so far in 2010.”
Year-to-date 2010 Financial Results
Total net sales were $160.1 million, an increase of 17.9% as compared to $135.7 million in the six months ended June 30, 2009. Net sales for the Company’s U.S. Consumer Direct segment increased 56.6% to $80.3 million, and same-store sales increased 11.9%. Net sales for the Company’s U.S. Wholesale segment totaled $49.8 million, a 16.6% decrease as compared to the prior year period, and net sales for the Company’s International segment increased 18.3% year-over-year to $27.5 million. Net sales included $2.4 million of licensing revenue as compared to $1.5 million in the same period last year.
Operating income decreased 18.3% to $25.3 million as compared to $31.0 million in the prior year period, primarily because of the $4.5 million separation costs incurred in the second quarter of 2010. Operating income was 15.8% of net sales in the first six months of 2010 versus 22.8% in the prior year period. The 2010 year to date operating margin excluding the separation costs is 18.7%.
Net income decreased 14.4% to $15.9 million, or $0.64 per diluted share based on weighted average shares outstanding of 24.8 million, as compared to $18.6 million, or $0.77 per diluted share based on weighted average shares outstanding of 24.1 million in the prior year period. Net income excluding the separation costs would have been $18.8 million, or $0.76 per diluted share for the first six months of 2010.
Balance Sheet and Liquidity
As of June 30, 2010, the Company had $121.0 million of cash and cash equivalents as compared to $105.5 million as of December 31, 2009. The Company also ended the quarter with no long-term borrowings. As compared to June 30, 2009, inventory increased by $8.6 million to $39.9 million, a 27.6% increase; the additional inventory supports the Company’s 22 branded retail stores opened since June 30, 2009 and additional warehouse inventory to support faster and better replenishment to retail stores. Retail inventory per square foot decreased 4% from June 30, 2009 to June 30, 2010.
Net cash provided by operating activities during Q2 2010 was $26.3 million compared to $30.1 million in the prior year. In the first six months of 2010, the Company paid more income tax than the first six months of 2009, which contributed to this reduction in net operating cash flows.
During the 2010 second quarter, True Religion Apparel opened five stores in the US, bringing its total store US count at June 30, 2010, to 81 stores, compared to 59 stores at June 30, 2009. The Company opened its first international full price retail stores in May 2010 in Tokyo, Japan and London, England. The Company anticipates opening 12 additional retail stores in 2010, including a full-price store in Toronto, Canada.
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 the Web site 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) 660-6853 (domestic) or (201) 612-7415 (international) and entering account: 3055 and conference identification: 354153. Please note participants must enter both the account and Conference identification numbers in order to access the replay.
About True Religion Apparel, Inc.
True Religion Apparel, Inc. is a growing, design-based jeans and jean-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 contemporary department stores and boutiques in 50 countries around the world, including the United States, Canada, Germany, United Kingdom, Japan, Korea, France, Spain, Sweden, Greece, Italy, Mexico, Australia, South Africa and China. For more information, please visit www.truereligionbrandjeans.com.