NEW YORK — Warm fall weather and a slower-than-anticipated rebound in its Japanese business kept True Religion from reaching its goals during the third quarter.
However, the Los Angeles-based manufacturer of premium denim and apparel posted significant sales and earnings gains for both the quarter and nine-month periods.
For the three months ended Sept. 30, earnings rose 6.3 percent to $8.2 million, or 35 cents a diluted share, compared with earnings of $7.7 million, or 33 cents, in the same period a year ago. The company incurred charges of $799,000 related to an arbitration settlement and its employment of Goldman Sachs to help explore the possibility of a sale. The charges negatively impacted earnings by 2 cents a share.
“We are very actively involved in that process,” said Jeff Lubell, chief executive officer, of the company’s work with Goldman Sachs during a conference call with analysts.
Sales for the period spiked 22.6 percent to $42.9 million from $35 million in the year-ago period. The U.S. accounted for approximately 71 percent of sales during the quarter, or $30.5 million. Outside of the U.S., the company’s efforts to aggressively move into non-denim categories was hampered by the weather.
“The unseasonably warm weather outside the U.S. did not inspire consumers to buy heavier fall merchandise,” said Lubell, adding that the numbers were off-target. “We heard this over and over from our European retailers.” Lubell noted that consumers were exhibiting buy now, wear now shopping habits, making it more important to have the right product mix on the retail floor at all times of the year. Management is looking to ultimately build a business that is evenly split between its denim and nondenim offerings. However, during the quarter nondenim products represented only 19 percent of sales. Management expects nondenim products to account for 21 percent of the business by the end of 2006.
Japan continues to be the firm’s largest international market, and generated sales of about $5.7 million. That, said Charles Lesser, chief financial officer, represented a more than 100 percent increase over the second quarter. However, sales were about even with where they were during the third quarter of 2005.
“We still are the number-one brand in premium denim [in Japan],” said Michael Buckley, president, during the call. “We believe our distributor has refilled the pipeline and is back on the growth path.”
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For the nine months to date, the company reported a 24 percent earnings gain to $19.6 million, or 83 cents a share, from $15.8 million, or 68 cents, in the same period a year ago. Sales ballooned 41.7 percent to $109.3 million from $77.1 million.