True Religion Apparel (NASDAQ:TRLG) has reported healthy results for the first quarter of 2006, delivering earnings of $0.28 per diluted share -- up 65% over last year's Q1 -- on 77% higher sales at $35.6 million. That falls firmly into the ranges expected by analysts and shows that the age of distressed high-end denim may not be over quite yet.

The company exhibits not only an exclusive selection of well-to-do cabooses but also dizzying sales growth and among the best margins in the apparel industry. Compare True Religion to a few of its closest peers, for example:

Gross Margin

Net Margin

Return on Equity*

True Religion

53%

14.5%

48%

Under Armor (NASDAQ:UARM)

51%

10%

27%

Columbia Sportswear (NASDAQ:COLM)

43%

11%

16%

Kellwood (NYSE:KWD)

28%

3.6%

3.5%

Blue Holdings (NASDAQ:BLUE)

50%

4.6%

4.5%
*Trailing 12 months

Now, I know that True Religion gets a bad rap for its checkered past, casting suspicion on the quality of management. But looking at the numbers today, it looks like the management team knows how to run this ship. New President Michael Buckley, formerly of Diesel and Ben Sherman, lessens the influence of Jeffrey Lubell (who is now acting "only" as company chairman and CEO), and brings in high-level management with documented experience in the retail apparel sector.

In particular, I like the fact that gross margins remain high and stable. This means that customers are not flinching at the price tags, and True Religion maintains pricing power even with an increasingly diverse product line. Couple that with the high growth we've gotten used to from the jeans maker, and you have a recipe for fat cash -- cash that management happily bakes right back into the business by expanding production and opening retail stores.

But there's trouble ahead, Fools. The earnings release also lowered guidance for the coming quarter -- without detailing the reasons. While the reiteration of full-year targets would imply that things are still generally on track, the dropped short-term expectations spooked investors, and the stock opened 5% lower this morning.

At prices around $18 a share, True Religion trades for about 18 times trailing earnings and 14.5 times the forecasted full-year earnings. How many companies do you know that grow earnings by 65% with no end in sight (this is still a small-cap company with plenty of room to grow), yet still trade at those earnings multiples? Current five-year forecasts look for 25% annual growth, which I say sets the bar ridiculously low. It takes three years to double earnings at that pace, something the company now does in six quarters. But let's stay with the growth forecast; we're still looking at PEG ratios between 0.36 and 0.45.

If I sound like a true believer, it's because I am. This stock has lived in my portfolio since last summer, and I see no reason to back out now. It's up to you to decide whether a slow upcoming quarter means long-term trouble or a buying opportunity. I see a small, best-of-breed retailer doing all the right things.

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Columbia Sportswear is a Motley Fool Hidden Gems selection.

Fool contributor Anders Bylund wouldn't fit into the largest jeans sizes True Religion makes. Bummer. Out of all the stocks mentioned, TRLG is the only one he owns. Go, disclosure, go!