True Religion (NASDAQOTCBB:TRLG.DL) is having a crisis of faith this week.
Its founding CEO was shown the door earlier this week, and now there's chatter that buyout talks for the maker of high-end casual wear have stalled. The stock is trading lower today on news that bidders are dropping out as True Religion's price has moved higher on the takeover speculation.
Shares of the apparel retailer popped in October after revealing that it was exploring strategic alternatives. It seemed to be a bad sign that the CEO would step down at this juncture, before a buyout was announced. Jeff Lubell was the company's chairman, CEO, and creative director. If an acquisition was coming soon, one would think that the buyer would want Lubell around to make sure that the baton was being handed over as smoothly as possible.
However, some viewed Lubell as an obstacle, according to the New York Post. Founding CEOs can be stubborn that way. Sources are telling the paper that the three potential private equity firm buyers have dropped out of the bidding process.
True Religion's stock was at $21 before the retailer went public, and a buyout at $30 may have been realistic; but the fear here is that a buyer would have to pay more than that now that the stock has been floating in the mid-$20s.
Let's buck fashion. Let's play contrarian here. Let's argue that True Religion doesn't need a buyout.
It may have been shameless to be a company selling a pair of jeans for $300 during the darkest recessionary stretches, but the economy's humming along now. Smaller rival Joe's Jeans (NASDAQ:DFBG) hit a two-year high last week. Analysts see True Religion growing revenue and earnings at healthy rates in the high single digits, and Joe's Jeans is growing even faster.
Last month's monster report by Michael Kors (NYSE:CPRI) was an eye opener. The retailer of upscale handbags and accessories stunned the market with a 70% spike in revenue on an amazing 41% spike in comps.
Investors shouldn't necessarily expect this kind of burst at True Religion, or even the faster growing Joe's Jeans; but consumer appetite for luxury goods is moving in the right direction.
Let the bidders drop out of True Religion. If the economy continues to inch in the right direction, Mr. Market will be willing to pay more.