I have never worn a pair of True Religions, nor have I ever yearned to venture into the store that opened on Wall Street a couple years ago (my fellow Wall Streeters, have you ever seen anyone in this store besides the employees? I sure haven't). But, I sure know when I see a stinker of a quarter, and this is what was heaved on the plates of the optimistic investor base (and sell-side analyst crew...of the eight analysts having coverage, seven rate the stock a buy or neutral) this evening. At first rundown, one's eyes would come across the call out of sharper profit margins at the outlet channel and reason "ok, well, it's outlets the pricing is supposed to be competitive."
Initial thoughts of giving the company a free pass would surface.
Then, one would observe that revenue was negatively impacted by a management decision to reduce shipments to off-price retailers and reason "that's ok, too, I don't want to see premium True Religions on the racks at Marshalls." By now, chops are being licked to potentially wade into the shark infested waters at the open tomorrow.
Hold your horses though, for let me allow you a peak in my head to show you what I see (those aforementioned topics, not really even a thought to me...my view is that they are buzzy words like those contained in SAT problems to lead you off the beaten path).
Management comment/Numbers
"Opportunities to strengthen existing international operations."
International sales represented 18% of total revenues and 21% of operating income in 2011, and the market is betting on the brand taking off outside of the U.S. The CEO comment, plus the drop in full year international operating margin (and the fact it's the lowest operating margin segment for the company), suggest True Religion doesn't have the structure, or even the brand strength, to live up to Street expectations the next 12-months. My view is that this, along with inventory which I think is too high coming into the year given the sales trends in the business, are why the fiscal year EPS guidance was placed so far below consensus.
The True Religion investment thesis has now been damaged. Other opportunities exist in retail, no need to be a hero.
