True Religion Q2 operating income grows 83% to $15.4 mn

07 Aug '08

5 min read

True Religion Apparel Inc announced financial results for the three and six months ended June 30, 2008.

Second Quarter Financial Results:
• Net sales in the second quarter of 2008 were $64.2 million, an increase of 78.9% from $35.9 million in the prior year period. Net sales in the Company's U.S. wholesale segment increased 57.3% to $38.4 million from $24.4 million in the prior year period. The Company's international wholesale segment's net sales increased 66.3% to $7.8 million from $4.7 million in the prior year period.

Net sales for the consumer direct segment, which includes the Company's branded retail stores and e-commerce site, increased 170.5% to $17.7 million from $6.5 million in the prior year period. The Company operated 30 branded stores as of June 30, 2008, compared to eight as of June 30, 2007. Net sales for the second quarter of 2008 included $0.3 million of licensing revenues.

• Gross profit in the second quarter of 2008 was $36.9 million, or 57.5% of net sales, compared to $20.5 million, or 57.3% of net sales, in the second quarter of 2007. The overall improvement in gross margin reflects the ongoing segment mix shift towards the Company's higher margin consumer direct business, partially offset by higher in-bound freight costs on certain imported denim fabric and an increase in sales to major department stores, which receive a volume price discount.

• Selling, general and administrative ("SG&A") expenses in the second quarter of 2008 increased 77.1% to $21.5 million from $12.1 million in the prior year period. SG&A expenses for the second quarter of 2008 included growth in consumer direct operating costs of $4.0 million and incremental pre-opening costs of $0.8 million.

The Company's second quarter 2008 SG&A expenses included $0.4 million related to projects that are expected to improve the Company's production planning and forecasting ability and contribute to the growth of its international segment.

The Company also incurred professional costs of $0.5 million, primarily related to the restatement of its previously released financial statements. The Company's second quarter 2007 SG&A expenses included $1.2 million of severance and recruiting costs related to the replacements of two former executives.

• Operating income for the 2008 second quarter increased 83.0% to $15.4 million, or 24.0% of net sales, compared to $8.4 million, or 23.5% of net sales in the 2007 second quarter. In 2008, the combination of incremental pre-opening costs, production planning costs, international growth costs and restatement professional fees reduced the Company's second quarter 2008 operating margin by 260 basis points.

• True Religion's effective tax rate for the second quarter of 2008 was 41.1% compared to 44.0% for the second quarter of 2007.

• Net income for the 2008 second quarter was $9.3 million, or $0.39 per diluted share based on weighted average shares outstanding of 23.9 million, compared to $5.0 million, or $0.21 per diluted share based on weighted average shares outstanding of 24.0 million in the 2007 second quarter.

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