True Religion: Raised Guidance A Warning (TRLG)

The great growth mystery of True Religion Apparel Inc. (NASDAQ: TRLG) might be coming in too light.  After the close of trading, the high-end, or at least high-priced, jean and apparel maker posted earnings of $0.58 EPS on $82.4 million in revenues.  While that is still growth in revenues, this is under the Thomson Reuters estimates of $0.59 EPS and $84.62 million in revenues.  There is “raised guidance” from the company, but there are issues despite revenues being up almost 4% from a year ago.

The company also raised guidance.  Revenues are effectively unchanged in guidance to a range of $295 million to $300 million in revenues, but earnings are now put in a target of $1.82 to $1.86 EPS versus prior guidance of $1.76 to $1.84 EPS.  The problem is that Thomson Reuters already has estimates at $303.07 million in revenues and $1.88 EPS.

The problem here is not the growth or lack of growth, particularly if you take just the mid-point of revenue guidance and see that it is roughly 10% revenue growth from 2008.  It is that the growth of the past and the valuations reached levels controversial enough and it defied logic (of many anyhow) to the point that the demands from analysts and investors became more and more.  And many investors and skeptics wonder how long $100 to $200 (and higher) blue jeans can hold up in the ‘new normal.’

With a 3% gain today to $26.56, this was at the top of a $7.80 to $28.90 52-week trading range.  The company also ended the day with a $638 million market cap.  This stock briefly hit $30 in 2008 before it began a hard slide down to under $10.00 by the height of the market malaise in March-2009.    The most recent short interest data shows some 5.41 million shares short, which is about 24% of the entire float.

Shares are down 10% at $23.70 in the after-hours session.

JON C. OGG
NOVEMBER 3, 2009