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Brean Murray Nov 4 Buy - COMPANY UPDATE True Religion...

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COMPANY UPDATE Please see the second to last page and last True Religion Apparel, Inc. November 4, 2010 Eric Beder , 212-702-6619 Jennifer Sung , 212-702-6688 “Crown of Thorns” Now on True Re Near Term Less Aggressive Investment Summary We are holding our Buy rating but reducing ou projections for FY2010 and FY2011 to $1.87 a $2.40, respectively) after TRLG missed 3QFY10 EPS guidance to $1.84 - $1.89 (excluding mana continue to believe that the fundamentals of the continues to invest for the long term in its con growth in its higher margin retail stores), inter purchase of their German joint venture), and th that a number of headwinds have presented se near term. A weak consumer spending environm (focused on clean and basic washes), and a c offset internal improvements which have led u estimates; while we believe the company has sustainable top and bottom-line growth with a c term, the women’s premium denim market wi trends shift in the company’s favor and drive price of $28 is now 13.3x our FY11 EPS projecti operating environment and investor uncertaint cash adjusted basis (accounting for the over $5 3Q10) our $28 target price would be 10.8X our n Discussion 3Q10 net sales rose 12.5% to $92.8 million, dr and international businesses. The U.S. co commerce, specialty boutiques, and the comp beacon of strength as it increased 42.0% YoY to (on a 63 comp store base) during the quarter. metrics including sales per square foot, convers to expand. While international sales also rose b in canceled orders due to management’s deci distributors (in Korea and Italy) as it builds a mo page of this document for important disclosures. (TRLG/NASDAQ) eligion; Remain Buyers but ur target price to $28 (from $36) and EPS and $2.10, respectively, (from $2.03 and estimates with $0.48 and lowered 2010 agement separation costs). Although we e company remain intact as management nsumer direct business segment (through rnational expansion (including the recent he hiring of key personnel, we recognize everal challenges for True Religion in the ment, challenging premium denim trends competitive promotional landscape have us to become more conservative in our continued to set the stage for solid and continued infrastructure build, in the near ill remain highly challenging until fashion higher average pricing. Our new target ion of $2.00, reflecting the tough current ty driven by the 3Q miss; we note on a 5.25 per share in net cash at the end of new 2011 EPS projection. riven by strength in the Consumer Direct onsumer direct segment (including e- mpany’s 89 domestic stores) remained a o $46.3 million supported by a 9% comp . Though AUR and traffic have declined, sions, and units per transaction continued by 8.7% to $18 million, it faced $2 million ision to terminate several non-exclusive ore robust direct international presence. Ta Price 52-Week High/Low Shares Outstandin Market Cap. (mm) Average Daily Volu EPS F Mar $ Jun $ Sep $ Dec $ FY $ Prior Consensus $ P/E 1 FY Rev. (mm) $3 Source: BigCharts.c 1 [email protected] [email protected] Buy arget Price: $28 (from $36) $20.13 w $34.17 - 17.30 ng (mm) 25.48 ) $512.81 ume (mm) 0.37 FY09A FY10E FY11E $0.32 $0.34A - $0.45 $0.42A - $0.58 $0.48A - $0.59 $0.64 - $1.92 $1.87 $2.10 - $2.03 $2.40 $1.92 $2.06 $2.40 10.5x 10.8x 9.6x 311.00 $357.22 $398.24 com
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Brean Murray, Carret & Co. Equity Research
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