KeyBank Dec 9 HOLD - Consumer Industry Research True...

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Consumer Industry Research True Religion Apparel, Inc. (TRLG-NASDAQ) True Focus on Retail Growth: Coverage Initiated with a HOLD Rating December 9, 2010 Edward J. Yruma (917) 368-2394 [email protected] Charu Sharma (917) 368-2276 [email protected] For important disclosures and certifications, please refer to page 27 of this document. KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC
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KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC Equity Research Page 2 of 27 December 9, 2010 Contents AT A GLANCE . .................................................................................................................................................... 3 SUMMARY AND RECOMMENDATION . ............................................................................................................. 3 KEY INVESTMENT POINTS. ............................................................................................................................... 3 VALUATION. ........................................................................................................................................................ 4 RISKS. .................................................................................................................................................................. 6 EARNINGS OUTLOOK: MID-TEENS EPS GROWTH IN 2011. .......................................................................... 7 INITIATION CHECKLIST = HOLD. ...................................................................................................................... 9 COMPANY HISTORY . ....................................................................................................................................... 10 DENIM BRAND STRATEGY. ............................................................................................................................. 10 NON-DENIM BRAND STRATEGY . ................................................................................................................... 12 KEY NEAR-TERM CATALYST: U.S. RETAIL SEGMENT. ............................................................................... 14 Strong Retail Segment Sales. ........................................................................................................................................... 14 E-Commerce. .................................................................................................................................................................... 14 Highly Productive Store Base. .......................................................................................................................................... 14 Outlet Channel. ................................................................................................................................................................. 14 KEY NEAR-TERM CATALYST: U.S. WHOLESALE . ....................................................................................... 16 Majors . .............................................................................................................................................................................. 16 Boutiques. ......................................................................................................................................................................... 16 Off Price. ........................................................................................................................................................................... 17 New Direct Sales Model . .................................................................................................................................................. 17 KEY LONG-TERM GROWTH CATALYST: INTERNATIONAL. ........................................................................ 20 International Wholesale . ................................................................................................................................................... 20 International Retail. ........................................................................................................................................................... 20 LICENSING SEGMENT . .................................................................................................................................... 21 PRODUCTION PROCESS. ................................................................................................................................ 22 Design. .............................................................................................................................................................................. 22 Manufacturing . .................................................................................................................................................................. 22 MANAGEMENT. ................................................................................................................................................. 23
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KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC Equity Research Page 3 of 27 December 9, 2010 Rating HOLD Price (12/3/10 close) $21.93 12-Mo. Price Target NA Dividend $0.00 Yield 0.0% 52-Wk. Range $17-$34 Trading Volume 427 Market Cap. (mm) $543.9 Shares Out. (mm) 24.80 Book Value/Share $9.42 Fiscal Year End December 2011E $2.06 2010E $1.87 2009A $1.92 2011 P/E 10.6x 2010 P/E 11.7x First Call 2011E $2.10 First Call 2010E $1.85 Next Quarter December Estimate $0.63 Vs. $0.59 First Call Estimate $0.62 Price/Book Value 2.3x True Religion Apparel, Inc. (TRLG-NASDAQ) TRUE FOCUS ON RETAIL GROWTH: INITIATING COVERAGE WITH A HOLD RATING. Edward J. Yruma: (917) 368-2394 [email protected] Charu Sharma: (917) 368-2276 [email protected] AT A GLANCE California-based True Religion Apparel, Inc. (TRLG-NASDAQ) designs, manufactures and sells trendy premium denim and apparel products in the United States and internationally under the brand name “True Religion Brand Jeans.” The Company has four business segments: U.S. Wholesale, International, Consumer Direct and Other. Products are sold at department stores such as Bloomingdale's and Saks Fifth Avenue, approximately 800 boutique and specialty stores, as well at the Company’s 89 domestic own branded retail stores. Product is also distributed internationally in Africa, Asia, Australia, Europe, the Middle East and South America. The Company’s denim product is manufactured in the United States. SUMMARY AND RECOMMENDATION We think that True Religion has a compelling direct growth story, but continued secular pressures leave us sidelined – we initiate with a HOLD rating. We think that True Religion is in the midst of a transition from an apparel company with a retail arm to a retailer with an apparel arm. This transition remains rocky, but over time, should help drive improved earnings. We think a key catalyst will be the Spring 2011 lapping of difficult comparisons in wholesale, at which point we think the earnings trajectory will improve meaningfully. Our sum-of-parts (SOP) analysis shows underlying value, and with
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This note was uploaded on 02/05/2012 for the course FINANCE 101 taught by Professor George during the Spring '11 term at University of Phoenix.

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KeyBank Dec 9 HOLD - Consumer Industry Research True...

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