True Religion Apparel Management Discusses Q2 2012 Results - Earnings Call Transcript

True Religion Apparel (TRLG)

Q2 2012 Earnings Call

July 31, 2012 4:30 pm ET

Executives

Jean Fontana - Senior Vice President

Jeffrey Lubell - Founder, Executive Chairman, Chief Executive Officer, Chief Merchant and Chief Executive Officer of Guru Denim

Peter F. Collins - Chief Financial Officer, Principal Accounting Officer and Assistant Secretary

Lynne Koplin - President

Analysts

Eric M. Beder - Brean Murray, Carret & Co., LLC, Research Division

Scott D. Krasik - BB&T Capital Markets, Research Division

Diana Katz - Lazard Capital Markets LLC, Research Division

Edward J. Yruma - KeyBanc Capital Markets Inc., Research Division

Susan K. Anderson - Citigroup Inc, Research Division

Ronald Bookbinder - The Benchmark Company, LLC, Research Division

Janine M. Stichter - Telsey Advisory Group LLC

Dorothy S. Lakner - Caris & Company, Inc., Research Division

Presentation

Operator

Greetings, and welcome to the True Religion Apparel Incorporated 2012 Second Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jean Fontana of ICR. Thank you. Ms. Fontana, you may begin.

Jean Fontana

Thank you. Good afternoon, everyone, and thank you for joining us today to discuss True Religion Apparel's second quarter 2012 financial results. By now, everyone should have access to the earnings release, which went out today at approximately 4 p.m. Eastern Time. If you have not received the release, it is available on the Investor Relations portion of True Religion's website at www.truereligionbrandjeans.com by clicking on the Investor Relations tab. We've also posted on the site the detailed management commentary on our segment results for the second quarter of 2012. This call is being webcast, and a replay will be available and archived on the company's website.

Please note that all information discussed on the call today is covered under the Safe Harbor provision of the Private Securities Litigation Reform Act. We caution listeners that during this call, True Religion management will be providing financial guidance and making other forward-looking statements regarding future financial results and business opportunities. We encourage you to read the 2011 10-K, the upcoming 2012 second quarter 10-Q and other reports that we file periodically with the SEC. These documents contain a discussion of the risks facing our business, including factors that could cause these forward-looking statements to not come true. The company does not currently intend to update these forward-looking statements except as required by law.

With that, it's my pleasure to turn the call over to True Religion Apparel's Chairman and Chief Executive Officer and Chief Merchant, Jeff Lubell. Jeff?

Jeffrey Lubell

Thank you, Jean, and good afternoon, everyone. Thank you for joining us today as we discuss our financial results for the second quarter 2012. Speaking on the call with me today are Lynne Koplin, our President; and Pete Collins, our Chief Financial Officer.

Our total net sales increased by 7% for the second quarter. Our U.S. Consumer Direct and U.S. -- and wholesale segments continued to produce steady net sales growth. And our U.S. Consumer Direct business, which grew by 10%, driven by a 2.4% same-store sales increase and 20 new store openings since the end of the second quarter last year.

Our U.S. Wholesale segment net sales increased 7% year-over-year, driven by our men's business, including in the specialty channel. Men's represents 63% of our total Wholesale business so far this year. The International segment's net sales declined by 2%, which was in line with our expectations. We opened 5 International stores in the quarter: 3 in Canada; 1 in Ireland; and another in Australia. Lynne will go into some detail on new initiatives we have put in place in the International segment.

My overall read on the company's results for the second quarter is mixed. While our largest segment, U.S. Consumer Direct, had a same-store sales increase, we did not achieve our sales plan for the segment. Many factors contributed to this outcome, including a weaker response toward our spring and summer merchandise assortment, a more promotional shopping environment and negative economic news which impacted consumer spending. But we managed our business throughout the quarter, including the initiation of a semiannual sale, expanded sales efforts to specialty accounts in the U.S. Wholesale segment and overhead cost discipline. These efforts allowed us to exceed our second quarter earnings per share forecast.

Pete will discuss our outlook for the rest of 2012. Although we maintained that the overall retail environment will still be challenging in the fourth quarter, we anticipate that we will be better prepared with the right mix of merchandise between both men's and women's and denim and sportswear. We have rededicated our design efforts to updating our best-selling classics, while also adding a compelling collection of novelty treatments and fabrics that will attract new customers.

With that, I would like to turn the call over to Pete, who will discuss the key financial highlights of the quarter. Pete?

Peter F. Collins

Thank you, Jeff, and good afternoon, everyone. I will begin with some additional color to Jeff's comments and then will provide details on the quarter. Also, I will discuss our updated outlook for the remainder of 2012. As a reminder, we have posted a detailed financial commentary of our segment results for the quarter and year-to-date in the Investor Relations section of our website.

Our U.S. Consumer Direct segment's net sales increased by 9.4% to $64.4 million as compared to the prior year. Our same-store sales increased 2.4% in the second quarter, which was below the result we expected. During the quarter, we opened 7 branded retail stores and we relocated 1, bringing the total to 116 stores at quarter end, compared to 102 stores at the end of the second quarter of 2011.

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