True Religion Apparel, Inc. (Nasdaq: TRLG) today announced financial results for the quarter ended June 30, 2011.
Second Quarter 2011 Financial Results
- Total net sales increased 19.6% to $98.3 million.
- Net sales for the Company’s U.S. Consumer Direct segment, which includes the Company’s branded retail stores and e-commerce site, increased 41.6% to $58.8 million and accounted for 59.9% of the Company’s total net sales for the quarter. Second quarter same-store sales for the 81 stores open at least 12 months and e-commerce increased 14.8%. The Company operated a total of 102 branded stores in the United States as of June 30, 2011, compared to 81 as of June 30, 2010.
- Net sales for the Company’s U.S. Wholesale segment totaled $21.0 million, an 18.2% decrease as compared to the prior year. This segment’s sales continue to be impacted by our challenging sales trend for women’s denim in the major department store channel. In addition, and consistent with the Company’s 2011 plan, sales to off-price customers were reduced to support long-term brand value. Sales to the specialty store channel increased for the fifth consecutive quarter.
- Net sales for the Company’s International segment increased 31.4% to $18.1 million. Growth in the segment was driven by the opening of three branded retail stores in Canada since June 30, 2011 and the transition from a wholesale distributor to a consolidated joint venture in Germany in August 2010.
- Gross profit increased 22.2% to $64.4 million, driven primarily by the overall sales growth. The gross margin rate increased 140 basis points to 65.5%, reflecting the ongoing sales mix shift towards the higher-margin U.S. Consumer Direct segment.
- Selling, general and administrative (“SG&A”) expenses, as a percentage of net sales, increased to 50.1% from 49.5% in the same quarter a year ago. The SG&A rate increase is primarily due to increased SG&A spending over the past year in the International segment due to the addition of wholesale sales personnel in Germany, the UK and Italy; the addition of five new retail stores; and the establishment of our regional office in Switzerland, which includes our EMEA managing director and regional headquarters staff. Also, in the second quarter of 2011, the Core Services segment recorded a $1.5 million reserve for a settlement of a pending litigation claim and the U.S. Wholesale segment incurred a $0.7 million write-off of a receivable from MetroPark due to its recent bankruptcy filing. The second quarter of 2010 results included $4.5 million in separation costs ($2.9 million net of income tax or $0.12 per diluted share).
- Operating income totaled $15.2 million, up 26.6% from the second quarter of last year. Operating margin was 15.4% in the second quarter of 2011 versus 14.6% in the second quarter of 2010. The second quarter of 2011 operating margin benefited primarily from the reduction in separation costs and an improvement in the Consumer Direct segment’s operating margin, which was driven by the 14.8% same-store sales increase. These changes were partially offset by the International expansion costs, the reserve for a settlement of a pending litigation claim and the MetroPark bad debt write-off.
- The effective tax rate for the quarter was 37.9% as compared to 37.1% in the second quarter of 2010. The 2011 effective tax rate increased over 2010 as the Company established its European headquarters in Switzerland.
- Net income attributable to True Religion Apparel, Inc. increased to $9.4 million, or $0.38 per diluted share based on weighted average shares outstanding of 25.0 million, as compared to $7.5 million, or $0.30 per diluted share based on weighted average shares outstanding of 24.7 million in the 2010 second quarter.
“We are pleased that we exceeded our net sales and profitability targets for the second quarter of the year. The standout performance this quarter was our U.S. Consumer Direct segment, which benefitted from new store openings, a same-store sales increase of 14.8% and consistent operating cost oversight, which combined to deliver a 370 basis point increase in the segment’s operating margin. We also achieved a 31% increase in our International net sales, as we benefited from strategic investments and more direct control of our business, especially in Canada and Germany,” stated Jeffrey Lubell, Chairman, Chief Executive Officer and Chief Merchant of True Religion Apparel, Inc. “Our first half results reinforce our view that our expanding direct-to-consumer business provides us the best opportunity to present our collection to loyal and new customers.”
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