Manhattan Beach-based True Religion Apparel Inc., a darling of the high-end denim market and Wall Street, seems to be getting a dose of reality.
The company has been rolling out a retail concept in key cities to strong responses, and its proprietary back pocket designs with thick white thread are still as ubiquitous in Los Angeles as film scripts.
But the firm reported a sharp drop in first quarter net income last week, down 35 percent to $4.2 million from $6.5 million a year ago. Accounting charges, retail rollout expenses and the separation with former co-founder, designer and chief financial officer Kymberly Lubell were all cited as major expenses.
Nonetheless, the company reiterated its full-year guidance, which predicts 20 percent sales growth.
Eric Beder, analyst with Brean Murray Carret & Co. LLC, is one of the only analysts with a buy rating on the stock. He said the problem for True Religion is that Wall Street is impatient by nature.
“It took Guess almost 25 years to be more than a denim company and it took Diesel more than a decade, but they expect True Religion to do it in five years,” he said.
There has been a cloud over the company since it missed third quarter projections, while still growing the company. Company stock hit its 52-week high of 23.88 back in October and has been trading in the mid to high teens since November. Stock closed at $15.65 on Wednesday, May 9.
“We are off to a strong start for the year,” said Jeffrey Lubell, chief executive of True Religion. “Our business is on plan, and we believe we have made the right investments over the past six months to further secure our foothold as a denim-inspired icon brand.”
Beder expects things for the company to fall into place in the fall, when new clothing lines will be released and the licensed products including footwear, headwear and outerwear hit the stores. The company’s staff has also grown rapidly in recent months, and Beder said the benefit of those moves should also be reflected this fall.
“This company has built the infrastructure for a much larger firm,” Beder said. “That hurt results, but now they’ve caught up and you’ll see it in the last half of this year. You can’t just hire a designer and expect a new line in five minutes.”
The company has also been in the news in recent months following the marital separation of founders Jeff and Kymberly Lubell, who designed the women’s clothing.
“I think that would have been a disaster about two years ago when they had four or five designers,” Beder said. “Things should just keep moving forward.”
Blue Skies
Commerce-based Blue Holdings Inc. may be on the move again after the company halted its long-planned acquisition of Up Against the Wall, the youth-oriented retailer with locations on the Eastern seaboard.
Company stock dropped from the $4 range in late November, and has traded below $2 for most of the six months since then. Company stock closed yesterday at $1.98.
Blue Holdings owns high-end denim brands Antik, Yanuk, Faith and Tavertini. Last week the company signed two licensing agreements for Antik. Blue also is part of a joint venture that owns the Life and Death fashion brand.
Blue agreed to let Mercier SARL manufacture, sell and distribute and market Antik denim throughout Europe for 20 months, renewable for up to four years if certain sales goals are met. Mercier’s brands include Phat Farm, Baby Phat, Fubu and Drew Pearson. Mercier will pay a 10 percent royalty on all net sales and an upfront guarantee advance of $250,000.
“Over the years, we have recognized our specialty as ‘Brand Builders’ and believe Antik Denim is a very exciting brand,” said Julian Sidonio, chief executive of Mercier. “The product is fabulous and the design team in the L.A. headquarters is filled with enthusiasm and creativity. This energy will support the brand and allow it to become a leading denim brand in the European market.”
The second licensing agreement of the week for Antik was with Max Ray Inc. for handbags, belts and scarves. The agreement, which takes effect on July 1, covers only U.S. sales. The company’s president Josh Cherin has designed accessories for Bebe Stores Inc., Nordstrom Inc. and Urban Outfitters Inc.’s Anthropologie.
“This agreement represents yet another step forward for the Antik brand as we continue to expand both our product lines and reach to further increase our brand awareness,” said Chief Executive Paul Guez. “We believe that Antik’s trademark logo will translate perfectly onto handbags, belts, scarves and small leather products and will greatly complement our denim offerings.”
Staff reporter Emily Bryson York can be reached at (323) 549-5225, ext. 235, or at
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