SECTOR: ConsumersSECTOR: ConsumersCOMPANY: True ReligionCOMPANY: True ReligionSR. ANALYSTS: ANNA BRAETJR. ANALYSTS: AMANDA CANNIZZIO, BRIDGET EASTES, MOLY FANG, JONATHAN GARNICK,, IMRAN HOSSEIN, JENNY KWONG, LESLIE MULLINGS, PRADEEP MAHTANI, ANDREW WALTERS
Investment RecommendationInvestment Recommendation
2
Company
Recommendation BUY
Current Price 23.31
1yr Target Price 31.79
% Upside 36.4%
Key investment drivers– 1. International Expansion– 2. Movement to Consumer-Direct-based Business Model– 3. Attractive Comparables
Premium Brand Denim & Premium Brand Denim & Apparel IndustryApparel Industry
The Premium Brand Denim & Apparel Industry consists of companies that design, manufacture, and distribute high-end apparel and accessories through distributors and company retail stores, with a specialized focus on luxury denim products to be sold to young-adults with high discretionary income.
3
By Revenue Industry Market Share by Revenue
True Religion True Religion Company SnapshotCompany Snapshot
4
Market Cap Revenue Beta Gross Margin EBITDA EPS P/E
570.42M $311M 1.72 63% 84M 1.75 10.8
TRLG Value ChainTRLG Value Chain
Outsource Production
to U.S. (denim),
Mexico, Asia
Raw Materi
als
In-House Distributio
n Showrooms (CA and
NY)
Direct from TRLG to Customers Brande
dRetailers
Department Stores & Boutiques
Licensing Accessory Manufacturers
International ExpansionInternational Expansion• Headquarters: Switzerland, Japan, South Korea, Hong
Kong, Germany• Joint Venture with German Distributor UNIFA Premium– Reduce Distribution costs
04/10/23 BU Finance & Investment Club 6Source: Company Filings
TRLG ExpansionTRLG Expansion
04/10/23 BU Finance & Investment Club 7
• 101 stores in 5 years• Saturation around 1000
stores • Expanding faster than
competitors – VFC: 50% marketing
on sportswear– BKE: not abroad– GES: approaching
saturation
Source: Company Filings
Total Store Openings:
Movement to Movement to Consumer DirectConsumer Direct
04/10/23 BU Finance & Investment Club 8
Motivations:• Department
stores• Profit margins• Premium Brand• Maintain >30%
gross margin
Movement to Movement to Consumer DirectConsumer Direct
04/10/23 BU Finance & Investment Club 9
Benefits:• Display space• More control• Avoid wholesale
pricing• Maintain >30%
gross margin
Attractive ComparablesAttractive Comparables
04/10/23 BU Finance & Investment Club 10
Gross Margin
Sales per Square Foot
4th Qtr Same-Store Sales
Growth
Inventory Turnover
63% $1818 7.2% 3.83
16% $428 6.3% 5.64
47% $6691 -6.0% 1.79
• No debt – no plans to assume debt• Cash financing of expansion
ValuationValuation
11
Year 2011(e) 2012(e) 2013(e) 2014(e) 2015(e)
FCF $ 68.46 $ 71.40 $ 79.04 $ 87.80 $ 97.90
DCF
WACC 13%
Growth Rate 2.5%
DCF Value 760.87
1yr Price 37.20
Comparables
Price/Sales(25%w)
1yr Price 22.81
EV/EBITDA(25%w)
1yr Price 29.95
50% Weight 50% Weight
1yr Target Price 31.79
% Upside 36.4%
Risks & SensitivitiesRisks & Sensitivities
12
25%
25%
25%
25%
100%
RecommendationRecommendation
Key Investment Drivers:– 1. International Expansion– 2. Movement to Consumer-Direct-based Business Model– 3. Attractive Comparables
13
Company TRLG
Recommendation
BUY
Current Price 23.31
1yr Target Price
31.79
% Upside 36.4%
Questions?Questions?
04/10/23 BU Finance & Investment Club 14
Back Up SlidesBack Up Slides
04/10/23 BU Finance & Investment Club 15
Trends and OpportunitiesTrends and Opportunities• International Expansion:– Japan, Europe– India
• Cost Reduction:– Lighter fabric for jeans– $3 million in capital expenditures for new technology
• Product Development:– Expansion of licensing for accessories– Sportswear to compete against VFC
04/10/23 BU Finance & Investment Club 16
TRLG Revenue ChainTRLG Revenue Chain
17
Consumer Direct: 41.5%Consumer Direct: 41.5%
U.S. Wholesale: 39.6%
International Sales: 17.5%
Sales
Licensing – 1.4%
RisksRisks• Cotton Price– Cotton prices at end of October about $1.50 per
pound, an 80% increase from beginning of 2010
18NYTimes.com, WSJ, www.tradingeconomics.com
Cotton Future High
Cotton Future Low
Average Price of Premium Denim
2010 125.26 (Oct.) 71.89 (Jan.) ~$180
2009 73.63 42.63 ~$180
2008 77.75 42.17 ~$180