True Religion Apparel Announces First Quarter 2013 Results
- Q1 2013 net sales increased 13.1% to $120.8 million
- Q1 2013 U.S. Consumer Direct net sales increased 12.1%; same-store sales increased 0.7%
- Q1 2013 GAAP diluted earnings per share were $0.02 versus $0.41 in Q1 2012
- Q1 2013 adjusted diluted earnings per share to exclude separation pay and costs of the Company's review of strategic alternatives was $0.22
- Company to be Acquired by TowerBrook Capital Partners; Suspends Earnings Conference Calls
First Quarter 2013 Financial Results
- Total net sales increased to $120.8 million, a 13.1% increase compared to the same period in 2012.
- Net sales for the Company's U.S. Consumer Direct segment, which includes the Company's branded stores and e-commerce business, increased 12.1% to $73.3 million, compared with the prior year quarter. First quarter same-store sales for the 108 stores in our same-store base and e-commerce increased 0.7% compared to the same period in 2012. The Company operated a total of 124 branded stores in the United States as of March 31, 2013, compared to 109 as of March 31, 2012.
- Net sales for the Company's U.S. Wholesale segment increased 19.1% to $25.5 million compared to the prior year quarter driven by growth in the Off-Price and Specialty Store channels.
- Net sales for the International segment totaled $21.3 million, an 11.6% increase as compared to the prior year quarter. The segment's increase was driven by a $3.4 million increase in international retail sales primarily as a result of an increase in store count from 18 at March 31, 2012 to 31 at March 31, 2013. The Company opened two international stores and closed one in the first quarter of 2013.
- Gross profit increased 6.9% to $73.7 million, driven primarily by overall sales growth. The gross margin rate decreased 350 basis points from the rate in the prior year quarter to 61.0%, due to increased discounts to sell excess merchandise.
- Selling, general and administrative ("SG&A") expenses increased 36.7% to $70.6 million from $51.7 million in the prior year quarter, and as a percentage of net sales increased to 58.5% from 48.4% in the same quarter a year ago. The increase in SG&A expenses was primarily attributable to executive separation costs of $7.5 million and costs associated with the Company's review of strategic alternatives of $0.8 million. In addition, costs to operate our expanded retail footprint increased by $2.8 million in our U.S. Consumer Direct segment and $2.3 million in our International segment.
- Operating income totaled $3.1 million, down 82.2% from the same quarter in the prior year, as the sales increase was offset by the former executive separation costs, higher discounts to sell excess merchandise, and the costs associated with the Company's review of strategic alternatives.
- The effective tax rate for the quarter was 86.6% as compared to 40.8% in the first quarter of 2012. The first quarter 2013 effective tax rate increased primarily because the ratio of foreign losses to our overall pre-tax income was higher than in the same quarter in the prior year. The separation costs and review of strategic alternative costs reduced our taxable income, which also negatively impacted the effective tax rate.
- Net income attributable to True Religion Apparel, Inc. decreased to $0.5 million, or $0.02 per diluted share based on weighted average shares outstanding of 25.6 million, as compared to $10.4 million, or $0.41 per diluted share based on weighted average shares outstanding of 25.4 million in 2012.
- Excluding the separation costs and the review of strategic alternatives costs, adjusted net income attributable to True Religion Apparel, Inc. was $5.7 million, or $0.22 per diluted share for the first quarter of 2013.
Balance Sheet and Liquidity
As of March 31, 2013, the Company had $71.3 million of cash and cash equivalents and $149.6 million of short and long-term investments, which totals $220.9 million. As of March 31, 2012, the Company had $204.2 million of cash and cash equivalents. The Company paid a portion of the previously discussed separation costs of approximately $5.1 million in March 2013, which impacted cash balances at March 31, 2013. The Company ended the quarter with no long-term borrowings. The inventory balance as of March 31, 2013 was $64.2 million, an 11.4% increase from March 31, 2012. This increase is primarily the result of an expanded retail store count from 127 retail stores at March 31, 2012 to 155 retail stores at March 31, 2013.
Net cash provided by operating activities for the first quarter of 2013 was $12.4 million compared to $12.5 million in the first quarter of 2012. This decrease in net cash provided by operating activities is linked to the decrease in 2013 net income offset by a decrease in inventory purchases compared to the first quarter 2013 compared to the first quarter of 2012 and a reduction in the payment of performance based compensation in 2013 because a portion of the 2012 performance compensation was paid at the end of December 2012.
During the 2013 first quarter, True Religion Apparel opened two stores in the U.S., one store in Hong Kong and one store in Canada and closed one store in the U.K. As of March 31, 2013, the Company operated 124 stores in the U.S. and 31 international stores.
Merger Agreement and Quarterly Dividend
Today we announced that we have entered into a definitive merger agreement with an affiliate of funds managed by TowerBrook Capital Partners L.P. ("TowerBrook"), the New York and London-based investment management firm, in a take-private transaction valued at approximately $835 million. Under the terms of the merger agreement, TowerBrook will acquire all of the outstanding shares of True Religion common stock for $32.00 per share in cash. The merger is subject to approval from our stockholders, regulatory approvals and other customary closing conditions. The transaction is expected to close in the third quarter of 2013. Pursuant to the Merger Agreement, we have suspended our regular quarterly dividend through the earlier to occur of the closing of the merger or expiration of the Merger Agreement.
Earnings Conference Call
We will not be conducting our quarterly conference calls addressing earnings during the pendency of our merger agreement. The call previously scheduled for 11:00 a.m. ET today will not be held.
About True Religion Apparel, Inc.
True Religion Apparel, Inc. is a growing, design-based jeans and jeans-related sportswear brand. The Company designs, manufactures and markets True Religion Apparel products, including its premium 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 the Company's branded retail and outlet stores as well as contemporary department stores and boutiques in 50 countries on six continents. As of March 31, 2013, the Company owned and operated 124 branded retail and outlet stores in the United States and 31 international stores. For more information, please visit www.truereligionbrandjeans.com.
Forward Looking Statements
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 discussion of our merger agreement with TowerBrook Capital Partners L.P., expected operating and financial performance 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 include, but are not limited to: (1) the occurrence of any event, change or other circumstances that could give rise to the termination of the Merger Agreement; (2) the inability to complete the proposed Merger due to the failure to obtain stockholder approval for the proposed Merger or the failure to satisfy other conditions to completion of the proposed Merger, including that a governmental entity may prohibit, delay or refuse to grant approval for the consummation of the transaction; (3) the failure to obtain the necessary financing arrangements set forth in the debt and equity commitment letters delivered pursuant to the Merger Agreement; (4) risks related to disruption of management's attention from the Company's ongoing business operations due to the transaction; and (5) the effect of the announcement of the proposed Merger on the Company's relationships with its customers, suppliers, operating results and business and the other factors d described in our Annual Report on Form 10-K, Reports on Form 10-Q and our other filings with the SEC.
|Q1 2013 Segment Results|
|(Dollar amounts in thousands)|
|Three Months Ended March 31,|
|U.S. Consumer Direct||$||73,346||$||65,458||12.1||%|
|Total net sales||$||120,795||$||106,785||13.1||%|
|Three Months Ended March 31,|
|U.S. Consumer Direct||$||48,751||66.5%||$||46,050||70.4%|
|Total gross profit||$||73,685||61.0%||$||68,901||64.5%|
|Three Months Ended March 31,|
|U.S. Consumer Direct||$||20,338||27.7%||$||22,327||34.1%|
|Total operating income||$||3,070||2.5%||$||17,235||16.1%|
|TRUE RELIGION APPAREL, INC. AND SUBSIDIARIES|
|CONDENSED CONSOLIDATED STATEMENTS OF INCOME|
|(Amounts in thousands, except per share data)|
|Three Months Ended|
|Cost of sales||47,110||37,884|
|Selling, general and administrative expenses||70,615||51,666|
|Other expense (income), net||217||(851||)|
|Income before provision for income taxes||2,853||18,086|
|Provision for income taxes||2,470||7,373|
|Less: Net (loss) income attributable to redeemable noncontrolling interest||(143||)||300|
|Net income attributable to True Religion Apparel, Inc.||$||526||$||10,413|
|Earnings per share attributable to True Religion Apparel, Inc.:|
|Weighted average shares outstanding:|
|TRUE RELIGION APPAREL, INC. AND SUBSIDIARIES|
|CONSOLIDATED BALANCE SHEETS|
|(Amounts in thousands, except par value amounts)|
|Cash and cash equivalents||$||71,300||$||
|Accounts receivable, net of allowances||31,502||31,647|
|Deferred income tax assets||5,373||7,293|
|Prepaid income taxes||4,315||5,359|
|Prepaid expenses and other current assets||12,897||10,123|
|Total current assets||311,905||306,225|
|Property and equipment, net||61,173||61,565|
|Deferred income tax assets||1,658||1,383|
|LIABILITIES AND STOCKHOLDERS' EQUITY|
|Accounts payable and accrued expenses||$||37,183||$||30,868|
|Accrued salaries, wages and benefits||12,449||11,383|
|Income taxes payable||762||5,060|
|Total current liabilities||50,394||47,311|
|Long-term deferred rent||18,013||17,517|
|Long-term deferred income tax liabilities||4,230||3,662|
|Long-term income taxes payable||969||916|
|Total long-term liabilities||23,212||22,095|
|Redeemable noncontrolling interest||3,543||3,375|
Preferred stock, $0.0001 par value, 20,000, shares authorized, no shares issued and outstanding
Common stock, $0.0001 par value, 80,000 shares authorized, 25,766 and 25,723 issued and outstanding, respectively
|Additional paid-in capital||92,429||89,287|
|Accumulated other comprehensive (loss) income, net||(165||)||1,660|
|Total stockholders' equity||329,741||332,935|
|TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY||$||406,890||$||405,716|