Would you pay more than $200 for a pair of denim jeans? Crazy, you say? Ludicrous? Not a chance? Somebody out there disagrees. Check that: A lot of people disagree. Look no further than the latest results from True Religion
The club-gear specialist's fourth-quarter revenues bounced to the tune of 87.5% growth from the same period a year ago. In the company conference call, management pointed to gains -- in its core denim lines and sportswear -- as areas of strength. True Religion believes it has built up "considerable brand equity" through its "innovative product design," and it hopes to capitalize by diversifying into other categories.
Looking ahead, True Religion sees tremendous growth opportunities in the men's, children's, and non-denim lines. Currently, men's business represents approximately 25% of volume, kids' 5%, and sportswear 16%. By the end of 2006, the company hopes to get the sportswear up to around 25% of sales. Additionally, it will begin targeting young professionals in the quarters ahead as it continues to take steps to become a "full luxury lifestyle brand." Premium denim will remain its "anchor," but management recognizes the need to expand into other opportunities.
True Religion just opened its first company-owned retail store in Manhattan Beach, and within the first three months it is averaging an astounding $2,000 per square foot per month in sales. To put this in perspective, Aeropostale
In 2006, True Religion plans to open two to four more retail sites in California, New York, and Las Vegas, with long-term plans to have 45 to 50 units up and running within a few years. Further development of company-owned retail stores will be a key part of its growth strategy in the United States.
Since I've been following the denim biz, I've heard all of the doom-and-gloom stories, including denim glut, increased competition, and doubts that the premium price points will stick. While these fears are not groundless, I admire True Religion's position. The company has been a tremendous growth story, and by all indications, it's just getting started. That's why it is now high on my watch list, as it should be on yours.
Try on other jeanswear Foolishness:
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Fool contributor Jeremy MacNealy does not own shares of any companies mentioned.