It looks like True Religion (NASDAQ:TRLG) is serious about retail. Nearly all of the premium jean wrangler's 12.8% sales growth last year came from its expanding chain of company-owned retail stores.
This time last year, True Religion had just kicked off the retail expansion with one full-price store and one discount outlet. Now, there are 11 stores and two outlets, and management plans to build many more. It really should. After all, the retail segment delivered 39% operating margins, well above the 32% total operating take.
It's still a smallish contribution to the top and bottom lines, though: Retail produced $7.2 million out of a total $48.7 million in sales for the third quarter. High-end retailers like Nordstrom (NYSE:JWN), Urban Outfitters (NASDAQ:URBN), and Macy's (NYSE:M) division Bloomingdale's continue to do most of the heavy lifting for True Religion. There's plenty of room to expand the highly profitable branded stores before cutting too deeply into the established distribution channels.
These results were a smidgen softer than management would have liked, on account of manufacturing delays on its greatly expanded and "more intricate" range of fall fashions. It's not just jeans anymore, but also jackets, skirts, fleece sweatshirts, and even shoes. But management is sticking to its previous guidance for the year, presumably because that delay only moved some sales back a quarter rather than losing them entirely.
In related news, True Religion's newly appointed financial advisors found errors in three years' worth of tax accounting, as the company had missed a limitation on income tax deductions for executive compensation. The tax burden of stock options may also have been miscalculated. Together, these two items should reduce the last three years' $70.4 million of earnings by about $4.7 million. Not a disaster by any means, but hardly welcome news, either.
In toto, I'll take the bad with the good. The revamped management team and that promising retail strategy should keep this train rolling. Recession fears tend to pressure mid-range fashionistas like J.C. Penney (NYSE:JCP) or Sears (NASDAQ:SHLD) first as price-sensitive consumers move down a notch, then the low end gets hit as even Target (NYSE:TGT) fashions start to feel expensive. Finally, the premium retailers such as True Religion feel the pinch when even the wealthy watch their wealth dwindle away.
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