Eleven years after founding True Religion Apparel (TRLG) in 2002, CEO Jeffrey Lubell is stepping down from his post atop the company. Lubell will remain as a "creative consultant" and Chairman Emeritus, while President Lynne Koplin will take over the chief executive title on an interim basis.
Lubell's departure is hardly stunning; the company's share price has struggled over the last two years, beset by flat earnings and a number of missteps, particularly in the company's expansion internationally. And, indeed, his departure seems likely to lift the company's share price for two reasons.
First, True Religion simply could benefit from new leadership. While I've commended Lubell on his candor and willingness to accept responsibility, the problem is that those traits have been required far too often. True Religion has missed out on a number of trends, such as colored denim, in its women's business, and its expansions into Japan and Italy, among other markets, turned into outright disasters.
Secondly, the news seems likely to lift hopes of a buyout of True Religion. The company announced in October that it had commenced a strategic review, after the Wall Street Journal announced the company was "putting itself up for sale." Speculation about potential buyers has ranged from a leveraged buyout by a private equity firm -- which would be aided by the company's substantial cash balance of $8.50 per share -- to privately held apparel companies to conglomerates such as PVH Corporation (PVH). The special committee convened by the True Religion board to discuss its "strategic alternatives" continues; "the process is ongoing," the company wrote in Tuesday's press release detailing the management change.
Lubell's departure has stoked speculation that a deal might be near, but there's been no evidence of an agreement yet released. But a sale without Lubell seems likely easier -- and more probable -- than one with him. The New York Post reported in November that Lubell had clashed with board member Marcello Bottoli, a fashion industry veteran, with Bottoli seeking to take the company private. And Lubell had little financial incentive to aggressively shop the company. Though he is the company's founder, he currently owns little more than 2% of the company's stock, with a good chunk sold in 2007 to finance his divorce. His stake in True Religion -- about 600,000 shares -- is worth about $16 million; his pay over the last three years totaled $25 million. Lubell's departure also negates a "golden parachute" in his employment contract that, in the case of a takeover, would have awarded him a substantial sum (roughly $25 million based on 2009-2011 results).
In short, whether True Religion is sold or not, Lubell's departure should be bullish for the stock, whether it leads to hopes for a turnaround, or hopes for a buyout. Figures for the latter have ranged from $30-$37 per share, all a decent premium to Tuesday's close of $27.16. Long-term value investors should still consider TRLG, and traders can look to call options, which figure to see activity Wednesday morning. Calls at the 28 and 29 strikes can be used in the hopes of a score if a buyout does indeed emerge in the wake of Lubell's exit.
With Lubell gone, True Religion looks set to have some new blood, either in the form of a new owner or a new chief executive. With sales and earnings stagnant, and the company's product line no longer the trend-leader it was just a few short years ago, this should be a good thing for the company and the stock. Who that new blood is, and what exactly they plan to do, remains to be seen.