True Religion Apparel Reports 2008 Fourth Quarter and Full Year Financial Results

True Religion Apparel, Inc. (Nasdaq:TRLG) today announced financial results for the fourth quarter and year ended December 31, 2008.

Fourth Quarter 2008 Financial Results

• Net sales in the fourth quarter of 2008 were $73.0 million, an increase of 38.5% from $52.7 million in the fourth quarter of 2007. Net sales in the Company’s U.S. wholesale segment increased 14.4% to $36.4 million from $31.8 million in the prior year period. The Company’s international segment’s net sales increased 27.4% to $11.8 million from $9.2 million in the 2007 prior year period. Net sales for the consumer direct segment, which includes the Company’s branded retail stores and e-commerce site, increased 112.6% to $24.4 million from $11.5 million in the prior year period. The Company operated 42 branded stores as of December 31, 2008, compared to 15 as of December 31, 2007. Fourth quarter 2008 net sales included $0.5 million of licensing revenues.
• Gross profit in the fourth quarter of 2008 was $43.3 million, or 59.3% of net sales, compared to $30.1 million, or 57.2% of net sales, in the fourth quarter of 2007. The overall improvement in gross margin reflects the ongoing segment mix shift towards the Company’s higher-margin consumer direct business. The gross margin improvement was partially offset by a decrease in net sales to boutique customers, which produce a higher gross margin than other wholesale customers, and a decline in the consumer direct segment gross margin resulting from incremental markdowns at the Company’s outlet stores.
• Selling, general and administrative ("SG&A”) expenses in the fourth quarter of 2008 increased 51.8% to $23.4 million from $15.4 million in the prior year period. SG&A expenses for the fourth quarter of 2008 included growth in consumer direct operating costs of $5.8 million.
• Operating income for the 2008 fourth quarter increased 35.0% to $19.8 million, or 27.2% of net sales, from $14.7 million, or 27.9% of net sales, in the 2007 fourth quarter. The year-over-year reduction in operating margin was primarily driven by the increased operating expenses associated with the expansion of the consumer direct segment.
• True Religion’s effective tax rate for the fourth quarter of 2008 was 36.5% compared to 41.0% for the fourth quarter of 2007. The reduction in the effective tax rate on a year-over-year basis was the result of the Company implementing a tax planning strategy in 2008 that retroactively changed its filing status in certain states. In addition, the 2007 effective tax rate was impacted by a significant amount of 2007 executive compensation that was not deductible for income tax purposes.
• Net income for the 2008 fourth quarter increased 42.6% to $12.7 million, or $0.53 per diluted share based on weighted average shares outstanding of 24.1 million, from $8.9 million, or $0.37 per diluted share based on weighted average shares outstanding of 24.0 million, in the 2007 fourth quarter.

2008 Financial Results

• Net sales for the full year 2008 were $270.0 million, an increase of 55.8% from $173.3 million in the prior year. Net sales in the Company’s U.S. wholesale segment increased 37.6% to $153.2 million from $111.4 million in the prior year. The Company’s international segment’s net sales increased 26.2% to $40.0 million from $31.7 million in 2007. Net sales for the consumer direct segment increased 157.3% to $75.3 million from $29.3 million in the prior year. Net sales for the full year 2008 included $1.4 million of licensing revenues.
• Gross profit for the full year 2008 was $157.0 million, or 58.1% of net sales, compared to $98.8 million, or 57.0% of net sales, in the full year 2007. The overall improvement in gross margin reflects the ongoing segment net sales mix shift towards the Company’s higher-margin consumer direct business, partially offset by increased wholesale sales of prior season and slow moving merchandise to select off-price retailers and a decrease in net sales to boutique customers, which produce a higher gross margin than other wholesale customers.
• SG&A expenses for the full year 2008 increased 70.5% to $88.1 million from $51.7 million in 2007. SG&A expenses for the full year 2008 included growth in consumer direct operating costs of $19.3 million, including $1.6 million of additional pre-opening expenses as the Company opened 27 stores in 2008. In 2008, the Company also incurred $2.1 million of expenses to launch its national print marketing campaign, and $1.0 million in costs related to the establishment and ramp-up of its first international subsidiary.
• Operating income for the year ended December 31, 2008 increased 46.1% to $68.9 million, or 25.5% of net sales, from $47.1 million, or 27.2% of net sales for the year ended December 31, 2007. The year-over-year reduction in the operating margin was primarily driven by the reduction in the U.S. Wholesale gross margin and increased operating expenses associated with the expansion of the consumer direct segment.
• True Religion’s effective tax rate for the year ended December 31, 2008 was 36.6% compared to 43.1% for in the year ended December 31, 2007. The reduction in the effective tax rate on a year-over-year basis was the result of the Company implementing a tax planning strategy in 2008 that retroactively changed its filing status in certain states. In addition, the Company’s 2007 effective tax rate was impacted by a significant amount of 2007 executive compensation that was not deductible for income tax purposes.
• Net income for the year ended December 31, 2008 increased 59.3% to $44.4 million, or $1.83 per diluted share based on weighted average shares outstanding of 24.3 million, from $27.8 million, or $1.16 per diluted share based on weighted average shares outstanding of 23.9 million, for the year ended December 31, 2007.

Management Comments

"Our strong performance in the 2008 fourth quarter and full year demonstrates the strength of our multi-segment distribution model,” said Jeffrey Lubell, Chairman, Chief Executive Officer and Creative Director of True Religion Apparel, Inc. "We delivered year-over-year revenue growth of 56% to $270.0 million from $173.3 million and grew profitability in excess of 59% to $44.4 million from $27.8 million. We attribute our strong performance to our ability to successfully leverage our expanding product collection across distribution channels to satisfy the growing worldwide demand for True Religion apparel. We are especially pleased to deliver these results while continuing to invest strategically in our brand, personnel and infrastructure. We believe we are well positioned to extend our market share and brand leadership and capitalize on the many growth initiatives we see ahead.”

Balance Sheet and Liquidity

As of December 31, 2008, the Company had $57.2 million of cash and cash equivalents and no debt. Net cash provided by operating activities during 2008 was $49.1 million compared to $9.8 million in the prior year.

Store Openings

During the 2008 fourth quarter, True Religion opened six new stores, bringing its total store count at the end of 2008 to 42 stores, compared to 15 stores at the end of 2007. In January 2009, the Company opened three new stores, bringing the total store count to 45 stores. The Company anticipates opening 22 additional new stores by year-end 2009 for a total of 67 branded retail stores.

2009 Guidance

The Company is initiating its guidance for the fiscal year ended December 31, 2009 as follows:

• Net sales are expected to be in the range of $290 million to $297 million
• EPS is expected to be in the range of $1.73 to $1.81.

The Company's 2009 EPS guidance reflects fully diluted weighted average shares outstanding of approximately 24.6 million and an effective tax rate of 36.9%.

Key assumptions embedded in the Company’s full year 2009 guidance, as compared to the full year 2008, are identified below:

• Forecasted net sales growth within the Company’s consumer direct segment of 60% to 65% will be driven by the addition of 25 new branded retail stores in 2009 and the 27 stores opened in 2008.
• Net sales in the U.S. wholesale segment is expected to decline by 17% to 19% driven by a sharp reduction in sales to boutiques and a mid-single digit decline in sales to Majors and off-price retailers.
• The Company’s International segment is forecasted to increase its net sales by low single digits, driven by an increase in net sales to Japanese wholesale customers.

Mr. Lubell added, "2008 was a year of significant accomplishments and strong financial performance for True Religion. We plan to build upon our positive momentum in 2009 with the introduction of new innovative jeans and sportswear products, continued growth in our consumer direct business and the expansion of our distribution channels both domestically and abroad. Despite the continued uncertainty in the direction of the economic and consumer environment, we are confident that we are appropriately resourced and positioned to respond to business developments, and evolve our operating and growth strategy, as necessary. We will remain acutely attuned to the changes in the macro-environment with a focus on monitoring key trends, such as sales order backlog, inventory levels and variable spending. We believe that our solid financial position and strong balance sheet will enable us to allocate resources strategically to grow the business for the long-term.”

Investor Conference Call

True Religion management will host a conference call to discuss the financial results and answer questions today at 4:30 p.m. ET. The conference call will be available to all interested parties through a live webcast at www.truereligionbrandjeans.com and www.earnings.com. Please visit the Web site at least 15 minutes prior to the start of the call to register and download any necessary software. For those unable to listen to the live broadcast, the call will be archived for a year at both sites. A telephone replay of the call will be available for approximately one month following the conclusion of the call by dialing (800) 406-7325 (domestic) or (303) 590-3030 (international) and entering passcode: 3970327.

About True Religion Apparel, Inc.

True Religion Apparel, Inc. is a growing, design-based brand. The company designs, manufactures and markets True Religion Apparel products, including its True Religion Brand Jeans. Its expanding product line, which includes high quality distinctive styling and fit in denim, sportswear, and licensed products, may be found in premium department stores and boutiques in 50 countries around the world, including the United States, Canada, Germany, United Kingdom, Japan, South Korea, France, Spain, Sweden, Greece, Italy, Mexico, Australia, South Africa and China. For more information, please visit www.truereligionbrandjeans.com.

This press release contains forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Among these forward looking statements are our 2009 Guidance, Segment Guidance, Store Opening Guidance and the other statements contained in this press release addressing our plans, expectations, future financial condition and results of operations. These forward-looking statements are not historical facts and are inherently uncertain and outside of our control. Any or all of our forward-looking statements in this press release may turn out to be wrong. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Actual future results may vary materially. Factors that may cause our plans, expectations, future financial condition and results to change are described in our Annual Report on Form 10-K, Reports of Form 10-Q and our other filings with the SEC, and include: the current downturn in the United States economy; the Company’s ability to predict fashion trends; the Company’s ability to continue to maintain its brand image and reputation; competition from companies with significantly greater resources than ours; and the Company’s ability to continue and control its expansion plans.