True Religion Apparel, Inc. announced financial results for the quarter and year ended December 31, 2012.
“As we start 2013, our plan is to enhance our men’s merchandise offering with sportswear innovation and re-establish the True Religion Brand Jeans women’s collection with updated, well-edited core basic denim bottoms and fashion-forward concepts.”
Fourth Quarter 2012 Financial Results
Total net sales increased to $137.0 million, or 14.8%, compared with the same period in 2011.
Net sales for the Company’s U.S. Consumer Direct segment, which includes the Company’s branded stores and e-commerce business, increased 11.8% to $86.4 million compared with the same period in 2011, and accounted for 63.1% of the Company’s total net sales for the quarter. Fourth quarter same-store sales for the 107 stores open at least 12 full months and e-commerce increased 1.5% compared to the same period in 2011. The Company operated a total of 122 branded stores in the United States as of December 31, 2012, compared to 109 as of December 31, 2011.
Net sales for the Company’s U.S. Wholesale segment increased 14.1% to $25.5 million compared to the prior year quarter driven by growth in the Specialty Store and Off-Price channels.
Net sales for the International segment totaled $24.2 million, a 27.8% increase as compared to the prior year quarter. The segment’s increase was driven by an 85.2% increase in international retail sales as a result of an increase in store count from 16 at December 31, 2011 to 30 at December 31, 2012. The Company opened two international stores in the fourth quarter of 2012.
Gross profit increased 15.1% to $88.1 million, driven primarily by overall sales growth. The gross margin rate increased 20 basis points to 64.3%, aided by gross margin expansion in the U.S. Wholesale and U.S. Consumer Direct segments.
Selling, general and administrative (“SG&A”) expenses increased 20.9% to $62.7 million from $51.9 million in the prior year quarter, and as a percentage of net sales increased to 45.8% from 43.4% in the same quarter a year ago. The dollar increase in SG&A expenses was driven by the costs associated with operating 13 additional U.S. stores and 14 additional international stores in 2012 as compared to the same period in 2011. Excluding $0.9 million of incremental costs associated with the review of strategic alternatives, the SG&A expenses would have been 45.1% of net sales for the fourth quarter of 2012.
Operating income totaled $25.4 million, up 3.0% from the fourth quarter of last year. Operating margin was 18.5% in the fourth quarter of 2012 versus 20.7% in the fourth quarter of 2011. The costs associated with the review of strategic alternatives reduced the quarter’s operating margin by 70 basis points.
The effective tax rate for the quarter was 45.7% as compared to 38.4% in the fourth quarter of 2011. The fourth quarter 2012 effective tax rate increased primarily because the Company chose not to transfer certain international assets and functions as this would have added complexity to our supply chain. That transfer would have allowed the Company to utilize tax loss carry forwards, which have now been offset by valuation allowances.
Net income attributable to True Religion Apparel, Inc. decreased to $13.5 million, or $0.53 per diluted share based on weighted average shares outstanding of 25.6 million, as compared to $14.5 million, or $0.57 per diluted share based on weighted average shares outstanding of 25.3 million in 2011.
Excluding the costs associated with the review of strategic alternatives described above, adjusted net income attributable to True Religion Apparel, Inc. was $14.0 million, or $0.55 per diluted share for the fourth quarter of 2012.
Management Comments
“We finished the fourth quarter with double digit sales increases in our three key segments. And, we expanded our gross margin in our domestic consumer direct and wholesale segments. These two segments combined for 82% of our net sales this quarter,” stated Jeffrey Lubell, Chairman, Chief Executive Officer and Chief Merchant of True Religion Apparel, Inc. “As we start 2013, our plan is to enhance our men’s merchandise offering with sportswear innovation and re-establish the True Religion Brand Jeans women’s collection with updated, well-edited core basic denim bottoms and fashion-forward concepts.”
Year Ended 2012 Financial Results
Total net sales for the year ended December 31, 2012 increased to $467.3 million, an 11.3% increase as compared to the year ended December 31, 2011. Net sales for the Company’s U.S. Consumer Direct segment increased 12.0% to $281.6 million, and same-store sales for the year ended 2012 increased 2.7%.
Net sales for the Company’s U.S. Wholesale segment totaled $99.2 million, a 15.0% increase as compared to the prior year, driven by increases in sales to the Off-Price and Specialty Store channels, which was partially offset by a decrease in sales to Major accounts. Net sales for the Company’s International segment for the year increased to $83.8 million, or 6.1% as compared to the year ended December 31, 2011.
Gross profit increased 10.2% to $299.5 million, and gross margin decreased by 70 basis points to 64.1% as compared to the year ended December 31, 2011.
SG&A expense increased 12.3% to $221.4 million from $197.2 million in the prior year, and as a percentage of net sales increased to 47.4% from 47.0% in the prior year. The increase primarily reflects the opening and operating of 28 new branded stores in 2012.
Included in SG&A for the year ended December 31, 2012 were costs associated with the review of strategic alternatives of $1.0 million. Included in SG&A for the year ended December 31, 2011 were net separation costs of $1.2 million associated with the resignation of a former executive.
Operating income increased 4.7% to $78.1 million, or 16.7% of net sales, versus $74.6 million or 17.8% of net sales in the prior year.