Double-digit increases in selling and administrative costs overshadowed rising sales for True Religion Apparel Inc. during the second quarter, causing the premium denim maker to miss Wall Street’s estimates by a wide margin.
For the three months ended June 30, the Vernon, Calif.-based company reported a 3.7 percent rise in earnings to $5.1 million, or 21 cents a diluted share, compared with earnings of $4.9 million, or 21 cents a share, during the same period a year ago. Wall Street analysts had expected average earnings per share of 26 cents for the quarter.
But management’s focus on expanding company-owned retail operations helped drive a 16.3 percent rise in sales to $35.7 million compared with $30.7 million in the year-ago period. Online and branded-store sales increased to $6.5 million from $700,000 last year. The company now operates six standard stores and two outlets, while it had only one owned store open during the second quarter a year ago. The wholesale segment posted a 9.9 percent increase in sales to $24.4 million from $22.2 million.
“The premium denim category continues to be very healthy for us and we are one of the strongest brands in the space,” said Jeffrey Lubell, chairman and chief executive officer, during a conference call with analysts. The brand is consistently among the top three brands at retail, added Lubell.
Double-digit sales declines continued in the international segment, which dropped 39.7 percent to $4.7 million compared with sales of $7.8 million a year ago. Management attributed the plunge to poor sales in Japan and the U.K. and an earlier start of fall shipments last year. The results follow a similarly difficult first quarter, when the company’s international segment saw sales fall 25.8 percent to $6.9 million from $9.3 million during the quarter.
Ultimately, significant increases in selling, general and administrative costs weighed heaviest on earnings. SG&A expenses ballooned 43.5 percent to $12.2 million from $8.5 million. Charges related to the departures of former chief financial officer Charles Lesser and vice president Kymberly Gold-Lubell, as well as costs associated with the company’s hiring of Goldman Sachs to explore a possible sale of the company, cost $1.2 million during the quarter. An additional $2.3 million was spent beefing up the owned retail business.
Related Articles
You May Also Like
“Our branded retail business is prolific with enviable sales and margins, and we are above plan with 15 stores targeted by yearend,” said Lubell in a statement.
For the first half of the year, earnings fell 18.6 percent to $9.2 million, or 39 cents a share, compared with earnings of $11.3 million, or 48 cents. Sales rose 8.3 percent to $71.9 million from $66.3 million. SG&A spiked 55.5 percent to $25.9 million from $16.7 million.
Lubell said he is optimistic about growing sales in the second half as the company continues to expand its product assortment. Moving beyond denim is a priority.
“Our design team is now a six-person-strong team, which is more than 200 percent larger than it was at the same time last year,” said Lubell during the call.
Eric Beder, senior vice president and analyst at Brean Murray, Carret & Co., said in an Aug. 6 report that the company’s new designs appeared to be resonating with consumers.
“While most of the new items have been out for, at best, two weeks, we believe initial results have been strong,” said Beder. “The key will be the level of reorders and the company’s ongoing ability to shift some level of sales away from denim; we are awaiting further items from the company’s new designers and licensees.”