True Religion Apparel, Inc. (Nasdaq: TRLG) today announced financial results for the quarter and year ended December 31, 2011.
Fourth Quarter 2011 Financial Results
- Total net sales increased 7.7% to $119.4 million.
- Net sales for the Company’s U.S. Consumer Direct segment, which includes the Company’s branded stores and e-commerce business, increased 23.7% to $77.3 million and accounted for 64.8% of the Company’s total net sales for the quarter. Fourth quarter same-store sales for the 92 stores open at least 12 full months and e-commerce increased 11.1%. The Company operated a total of 109 branded stores in the United States as of December 31, 2011, compared to 94 as of December 31, 2010.
- The Company’s International segment’s 2011 net sales remained flat with 2010 at $19.0 million, as retail sales growth in Canada and the United Kingdom was offset by the decision to discontinue sales of merchandise in the Korea off-price channel.
- Net sales for the Company’s U.S. Wholesale segment totaled $22.4 million, a 20.4% decrease as compared to the prior year. The decline primarily reflects the planned reduction in sales to off-price customers, which is consistent with the Company’s 2011 plan to support long-term brand value. Sales to the specialty store channel, which now accounts for a majority of this segment’s net sales, increased for the seventh consecutive quarter.
- Gross profit increased 9.7% to $76.5 million, driven primarily by the overall sales growth. The gross margin rate increased 120 basis points to 64.1%, reflecting the ongoing sales mix shift towards the higher-margin U.S. Consumer Direct segment. The Consumer Direct segment’s gross margin rate decreased 230 basis points due to higher than expected markdowns in outlet stores to respond to the highly promotional environment.
- Selling, general and administrative (“SG&A”) expenses increased 19.0% to $51.9 million from $43.6 million in the prior year quarter, and as a percentage of net sales, increased to 43.4% from 39.3% in the same quarter a year ago. The majority of the growth in the SG&A expenses was driven by the costs associated with operating 15 additional U.S. stores and nine additional international stores in 2011 as compared to the same period in 2010. SG&A also includes $1.4 million in non-cash store impairment charges, representing an increase of $0.9 million over the fourth quarter of 2010, or 110 basis points of the SG&A rate. Excluding the non-cash impairment charges, the SG&A rate would have been 42.3% of net sales for the fourth quarter of 2011.
- Operating income totaled $24.7 million, down 5.8% from the fourth quarter of last year. Operating margin was 20.7% in the fourth quarter of 2011 versus 23.6% in the fourth quarter of 2010. The decrease in the operating margin is primarily due to the reduction in sales to U.S. and Korea off-price accounts, the higher markdowns in outlet stores and the store impairment charge increase.
- The effective tax rate for the quarter was 38.4% as compared to 40.0% in the fourth quarter of 2010. The fourth quarter 2010 effective tax rate was impacted by the set-up of the Company’s European headquarters in Switzerland in November 2010.
- Net income attributable to True Religion Apparel, Inc. decreased to $14.5 million, or $0.57 per diluted share based on weighted average shares outstanding of 25.3 million, as compared to $15.8 million, or $0.63 per diluted share based on weighted average shares outstanding of 25.1 million in 2010. Net income attributable to True Religion Apparel, Inc. included $0.7 million in foreign currency losses related to intercompany balances, or $0.4 million after tax, compared to less than $0.1 million in foreign currency gains related to intercompany balances, both before and after tax, in the fourth quarter of 2010.
- Excluding the impairment charges and foreign currency impact described above, the adjusted net income attributable to True Religion Apparel, Inc. was $15.7 million, or $0.62 per diluted share for the fourth quarter of 2011.
“In the fourth quarter we achieved growth in our net sales, good profitability and approximately $23.1 million in net operating cash flow. This wraps up a good year in which our U.S. Consumer Direct segment, our largest segment, increased its sales by 33% and its operating income by 37%. For the full year, same store sales rose 11%, on top of a 10% increase in 2010. Our International segment grew its net sales by 23%, driven by more direct control of our business, and we continued to make strategic investments to position us well for future growth. We expect the agreement for retail and wholesale expansion in Hong Kong and China that we signed in the third quarter, coupled with opportunities to strengthen existing international operations, will help increase our long-term penetration outside the U.S.,” stated Jeffrey Lubell, Chairman, Chief Executive Officer and Chief Merchant of True Religion Apparel, Inc. “Our business has many positive trends and we look forward to another year of increased net sales and profits in 2012.”
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