True Religion Apparel, Inc Q2 2010 Earnings Call Transcript

| About: True Religion (TRLG)

True Religion Apparel, Inc (NASDAQ:TRLG)

Q2 2010 Earnings Call

August 3, 2010 4:30 pm ET


Anne Rakunas - ICR

Jeff Lubell - Chairman, CEO & Chief Merchant

Pete Collins - CFO

Mike Egeck - President

Lynne Koplin - COO


Eric Beder - Brean Murray

Diana Katz - Lazard Capital Markets

Christine Chen - Needham & Company

Eric Tracy - FBR Capital Markets

Dorothy Lakner - Caris & Company


Welcome to the True Religion Apparel, Inc. 2010 second quarter Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator's instructions) As a reminder this conference is being recorded.

It is now my pleasure to introduce your host, Anne Rakunas, of ICR. Thank you, Ms. Rakunas, you may begin.

Anne Rakunas

Thank you. Good afternoon everyone and thank you for joining us today to discuss True Religion Apparel's second quarter 2010 financial results. By now everyone should have access to the earnings release, which went out today at approximately 4:00 pm Eastern Time. If you have not received the release, it is available on the Investor Relations portion of True Religion's website at by clicking on the investor relations tab.

This call is being webcast and the replay will be available and archived on the company's website. Please note that all of the information discussed on the call today is covered under the Safe Harbor provision of the Private Securities Litigation Reform Act.

We caution listeners that during this call True Religion management will be providing financial guidance and making other forward-looking statements regarding future financial results and business opportunities.

The company's actual future results maybe very different from our current expectations. We encourage you to read the 2009 10-K, the upcoming 2010 second quarter 10-Q and other reports that we file periodically with the SEC. These documents contain a discussion of the risks facing our business including factors that could cause these forward-looking statements to not come true. The company does not currently intend to update these forward-looking statements except as required by law.

With that said, it is my please to turn the call over to True Religion's Chairman, Chief Executive Officer and Chief Merchant, Jeff Lubell. Jeff?

Jeff Lubell

Thank you, Anne and good afternoon everyone. Thank you again for joining us today as we discuss our financial results for the second quarter of 2010. On the call with me today are Mike Egeck, our new President who we welcome to his first conference call with the True Religion brand, Lynne Koplin, our Chief Operation Officer and Pete Collins, our Chief Financial Officer.

Summing up the second quarter overall was a step forward for our company, our same-stores sales comparisons continue to be nicely positive in what turned out to be a relatively soft quarter for retail in general.

The net sales for our US Consumer Direct segment increased by 47%, and continued to be our largest segment representing just over half of our total sales, we opened five domestic stores in the quarter and finished with 81 stores versus 59 stores a year ago.

We also continued to make good progress in building our international business, we grew international sales by 40%, we opened full priced stores in Tokyo and London, and we recently announced our new joint venture in Europe with UNIFA premium, which has been our largest international distributor.

Our wholesale business with domestic boutiques also was a standout in the quarter, with sales increasing by more than 30%. This is the first increase in this channel in nine quarters, and is primarily result of a much more effective effort in targeting boutique accounts by our new in-house sales team.

While this is not a particularly large business for us, it is an important one for the brand and we believe we are in the early stages of ramping up this profitable channel, while our business this quarter with the major department stores is softer than our plan, we have identified the issues that we can control and are changing our approach with these customers.

In our men's business, at the majors is healthy and grew in the quarter, however our women's denim sales have slowed in this channel. We have good success with non-denim styles but we are not able to offset the current softness in denim. Our team is working on some initiatives to position us better as we move into 2011, which Lynne will speak to in a minute.

We certainly believe that a few strong brands including True Religion brand will survive the current shakeout and will be long-term beneficiaries and winners in the premium denim business.

Last month, we introduced a new licensee, Titan Industries to re-launch the True Religion Brand Jeans Footwear for women. Our first collection with Titan is expected to be in stores in spring for 2011. Our other footwear licenses remained on Board. Now, they will focus exclusively on the Men's Footwear category, where they have established a solid niche with good distribution. I look forward to partnering with Titan to develop the Woman's Footwear category.

Overall, our current order book is up slightly from the prior year with our International segment especially channel continuing their positive momentum, but the Q3 orders from the majors are down as sales in much of this channel are challenging the best.

Our total adjusted operating income for the second quarter reflects continued growth for our Consumer Direct businesses, where we saw sales growth and operating margin expansion, offset by investments in our International segment and then expected decline in our US wholesale business, both of which experienced margin contractions.

The operating performance of each of these last two businesses were still on plan in the quarter and we believe we are positioning each of our segments for healthy, long term, top and bottom line growth.

We are reducing our earnings per share guidance for 2010 due to the unplanned $4.5 million separation cost, which we incurred this past quarter. Beyond that change to our guidance, our business is performing well as we continue to build our Direct to Consumer segment, expand our global presence and become more responsive to the needs of our major department stores.

Now I'd like to turn the call over to Pete who will lead us a review of our second quarter results. Pete?

Pete Collins

Thanks Jeff and good afternoon everyone. The second quarter net sales increased 14.0% to $82.2 million, up from $72.1 million in the second quarter of 2009 and our Consumer Direct segment continued to drive our top-line growth. Same-store sales which included 56 stores that were open for at least 12 months increased 6.7%.

The resulting margin in earnings results exclude the separation costs associated with the termination of our former president, which totaled $4.5 million or $0.12 per share in the second quarter of 2010.

Gross profit for the quarter was $52.7 million or 64.1% of net sales versus 62.1% of net sales in the second quarter of 2009. Our gross margin gain was driven by the ongoing sales mix shift towards our higher margin Consumer Direct segment.

Selling, general and administrative expenses increased by $9.3 million to $36. 2 million in the quarter. SG&A as a percentage of net sales was 44.0% compared to 37.3% in the second quarter of 2009, which a 670 basis points increase in the SG&A rate on a year-over-year basis. 380 basis points of the year-over-year SG&A rate increase is linked to the decrease in US wholesale sales including the planned reduction in our price sale.

The majority of our US wholesale segment SG&A is fixed as we classify our design, production, warehouse, information technology and customer service and accounting teams in this segment, even though their efforts are linked to our overall business trend.

The 200 basis point of the SG&A rate increase is associated with the expansion of our international business including the opening of new stores in Tokyo and London, the setup of management offices in Hong Kong, in Korea and establishing our German JV.

The Consumer Direct segment SG&A rate decreased 70 basis points on a year-over-year basis thanks to segment's same-store sales increase. The corporate SG&A dollars were unchanged on a year-over-year basis at $6.4 million.

Operating income for the quarter was $16.5 million or 20.1% of net sales compared to $17.9 million or 24.9% of net sales in the prior year period. The operating margin for the quarter was impacted by the US wholesale sales decline combined with additional spending in our International segment. Offsetting these factors was a 70 basis points increase in operating margin in our Consumer Direct segment.

Turning now to additional details on our segments for the second quarter. Consumer Direct sales increased 47.2% to $41.5 million. This was driven by store openings and a same-store sales increase. We opened five stores in the second quarter of 2010, bringing our store count to 81 stores as of June 30, 2010. Our store count is now comprised of 61 full-priced stores and 20 outlets. We expect to open an additional 12 stores in the second half of 2010 including Toronto in the fourth quarter, our first store in Canada and the Forum Shops in Las Vegas.

Our weighted average retail square footage for the second quarter was 148,000 square feet compared to 97,000 square feet for the second quarter of 2009. At the end of the quarter, our total retail square footage was 151,000 square feet.

Other key metrics in the Consumer Direct segment include average selling price in our full-priced stores. Our [Jeans-T] was $246 versus $273, a year ago, the decrease in ASPs reflects the styles shift to cleaner washes, which are less expensive to produce.

Sportswear sales made up 27% of our Consumer Direct sales, a slight increase from the 2009 rate at 26%. Same-stores continued to achieve healthy four wall margins. For the second quarter 2010, our four-wall operating margins was 36.6%, as compared to 35.7% in the same period last year.

Operating income within our Consumer Direct segment increased to 50.6% to $13.7 million driven by the 47% sales increase. The segment's operating margin improved 70 basis points, to 32.9%. The margin improvement was driven primarily by the same stores sales growth, which has allowed us to gain leverage on fixed cost.

In our US. wholesale segment, sales for the quarter decreased 16.7% to $25.7 million versus $30.8 million a year ago. The sales decline in this division was due to our planned 25% reduction in sales off priced accounts and a 30% decrease in sales of the full priced, wholesale accounts, which was slightly better than our anticipated decrease.

Our sales to boutiques increased on a year-over-year basis, which is this channels first quarterly increase in nine quarters, sales to majors were disappointing, specifically in the women's category. Lynne will describe the current environment in the majors women's category and discuss our new approaches to this channel.

Gross profit in the US. Wholesale segment eased by 40 basis points from last year as we anniversaried last years favorable fabric purchases, and offered some additional sales discount spur specialty store purchases of merchandize on hand.

US Total SG&A increased by 1.8 million in departments that support our overall business growth including IT, distribution and design. As I mentioned earlier both of the SG&A in this segment supports our overall business.

In the international segment, net sales increased by 14.1% to $13.8 million from $12.1 million a year ago. We achieved our best sales growth in Asia including Korea, Japan and Hong Kong. We've achieved year-over-year net sales increases in the majority of our ten largest international markets. This segment sales increase in Q2 was below our anticipated annual sales increase rate due to the timing of shipments to one market. We expect our sales to that market will return to normal for the back half of the year.

The international SG&A increased in Q2, 2010 by $2.3 million primarily for costs associated with expanding our global presence. The startup cost associated with the new stores in Tokyo and London were approximately $900,000.

The sales and management team we have in Hong Kong and Korea added approximately $600,000 and the cost to establish the German joint venture were approximately $300,000. Our international operating income decreased 26.4% to $4.3 million with an operating margin of 31.2% versus 48.3% in the prior year period.

Our 2010 third quarter wholesale sales order book, which includes US full price and international orders but excludes our priced orders was up slightly as of June 30, 2010 as compared to June 30, 2009. While our third quarter order book for US wholesale full price customers, which includes our customers except the off-price accounts was down 15% as compared to the prior year, the international orders were up 26%.

Our effective tax rate for the second quarter of 2010 was 37.1% compared to 38.8% in the second quarter of 2009. We anticipated an improvement in our 2010 effective tax rate, primarily because the credit rate for manufacturing merchandise in the US has increased in 2010.

Net income for the 2010 second quarter excluding the separation agreement costs were $10.4 million or $0.42 per diluted shares, based on weighted average shares outstanding at 24.7 million compared to net income of 11.0 million or $0.45 per diluted shares based on weighted average shares outstanding at 24.1 million shares in the second quarter of 2009. We reported GAAP net income and EPS of $7.5 million and $0.30 respectively.

For the six months till June 30th, 2010 net sales increased 17.9% to $160.1 million. Growth in our Consumer Direct segment was particularly strong with net sales rising 56.6% and same-stores sales increasing 11.9%. Net income increased 1.0% to $18.8 million or $0.76 per diluted share excluding costs related to the second quarter separation agreement.

Now turning to our balance sheet, we ended the quarter with $121 million in cash and cash equivalents compared to $105.5 million as of December 31, 2009. We continue to carry no debt and we fund our growth from internally generated cash reserves and current operation.

Accounts receivable at the end of the second quarter was $23.9 million, a $3.3 million decrease from $27.2 million as of December 31, 2009 and a $2.3 million decrease from June 30, 2009.

Inventories at the end of the quarter were $39.9 million, an increase of $8.6 million or 27.6% from the end of the second quarter of 2009. Over the past year, we added inventory for our new stores and some improved retail inventory replenishment, which contributed to the same-store sales increase from Q4 2009 through Q2 2010. Our total domestic retail inventory per square foot decreased 4.0% as of June 30, 2010, as compared to the end of the second quarter of 2009.

Turning to guidance, we are maintaining our policy of revising our 2010 guidance during the quarters of 2010 when we see significant business trends or market development. The separation costs of $4.5 million or $0.12 per share was not contemplated in our 2010 plan. As a result we now expect our diluted earnings per share to be in the range of $1.88 to $1.98 per share.

Our net sales guidance of $360 million is not impacted by this change. We have reduced the number of retail stores we expect to open in 2010 by four. Two stores are delayed because the locations we expected to receive fell through. So, now we are waiting for other locations that meet our criteria and two were delayed because the developers put their project expansion on hold.

The sales impact of the store count reduction is offset by the additional sales we now expect from our joint venture in Germany.

With that, I would like to turn the call over to Lynne Koplin to take us through on our domestic sales efforts. Lynne?

Lynne Koplin

Thanks Pete and good afternoon everyone. After I joined the company at the beginning of the year, I visited many of our stores to get an appreciation of how we could improve our business. My primary conclusions was that we were not highlighting our latest styles, I then let my team pull together more detailed reports on the sales by category in relation to ownership, hope that with each classification, returning wherever there is a room for improvement, the strength of the time, we are in the fashion category in women, in the super T category in men.

We were underpenetrated and needed to maximize those business immediately. By focusing the retail team and maximize strength and opportunities and minimize low performing categories, we were able to lay the foundation for a new merchandise planning discipline that will move us forward, own what you sell and plan for the future.

We then set out to develop a new approach to present our fashion trends into our stores each month. This new approach also entailed a more systematic process for transferring slower moving styles to our outlets each month, to make room for the newness in our full priced stores.

These changes involve the retail buying, planning and allocation team and the production IT and warehouse departments. This new four step approach started last month with the introduction of fall one, and we are pleased with the reaction we received.

Later this month, we will introduce our fall two four step. Our performance in July shows that this approach contributed to a net sales trend improvement as compared to June's results. Also following this new four step approach in July, we achieved double digit sales growth in less developed product like men's woven shirts.

On the whole sale side of the business we have seen many changes recently. We started the year with a new in-house sales team, which has expanded our contacts with specialty accounts and brought us closer to our major accounts. The extra resources dedicated to the specialty account delivered an increase in Q2 net sales and the Q3 order books for this channel.

Our boutiques accounts also present the breadth of the collections to the True Religion consumer, because their stores are spread throughout the country and their owners and buyers are representative of local fashion in boutiques.

Our sales to the majors were mixed in the first half of the year. While the men's business produced consistent sales growth coming from signature fit and more distinctive styling, the premium women's business has been more difficult. We have seen a decrease in the average selling price some due to an overall trend toward dark cleaner washes, skinny jeans, legging fit and some non-denim fabrication.

Generally some of the majors are taking a very conservative approach to inventory levels, carrying less expensive style to encourage the consumer to buy and becoming more promotional to get them into the store. All of this contributed to our first half sales finishing below our expectations in the women's major category.

We are now addressing this category with new approaches. First, we are meeting directly with the majors more often than in the past to gather their input and then incorporate their feedback into our collections where appropriate. We are also personally in their key locations to work with their store staff to maintain our inventory levels and maximize our product presentation.

Going forward feedback from the market will be incorporated into our merchandize strategy more quickly and will help to increase our competitive edge. Starting with this fall season, one of the majors will move our women's merchandize to a new department, which is their denim headquarters for the contemporary customers. This new department is larger and can support [outdoor] replenishment programs with new product launches in top locations.

By making this shift, we believe that this will give us increase visibility toward trending generally in their stores and in the women denim market. Generally, how we sell products in our retail stores is what we will incorporate in to our model for showing these product offering into the wholesale channel.

The consumer today seeks newness, a reason to buy. They need to feel like the product is unique and if they don't buy when they see it won't be there the next time they are in the store. Its truly an item business right now and the diversification of what we offer as a brand can create unique and exclusive assortment in every store we sell.

As we expand our retail store reach, we must keep the product new, fresh, and [different] in the wholesale channel as well as in our own retail stores.

Now, I'll turn call over to Mike Egeck to update you our international business. Mike?

Michael Egeck

Thank you, Lynne and good afternoon everyone. I like to start by saying it's a pleasure to be here today, throughout my career I had the opportunity to work with number of great brand. I have always admired True Religion even when competing directly against it.

Jeff has built a company with a distinct and aspirational brand vision, distinct and aspirational product, a compelling business model and global appeal. That is the winning combination and I look forward to working with Jeff, Pete, Lynne and the rest of the talented True Religion team as we continue to scale the brand and the business.

Today I like to touch on three things, our recently announced JV in Europe, a little bit about our plans for international expansion and the initial reaction to our spring 2011 line. We know from July 26th, that we had partnered with UNIFA Premium to form True Religion Brand Jeans Germany.

Prior to forming the JV, UNIFA Premium has been our largest international distributor. They've had a consistent track record of significant year-over-year growth, including both 2008 and 2009, which were achieved in a challenging economic environment. The JV will direct manage our business in Germany, Austria, Switzerland and Benelux region. The JV will operate our showrooms in Düsseldorf and Munich and look to establish a showroom in the Benelux region.

Reinhard Haase who is the co-founder and managing director of UNIFA will serve as managing director of True Religion Brand Jeans Germany. We are extremely pleased to have Reinhard as our partner.

As Jeff said in our press release, Reinhard is the foremost premium denim merchant in Europe, a proven business builder and an accomplished retailer. In anticipation of the JV, UNIFA Premium opened a True Religion store in Cologne in March and we are pleased to say that it is performing very well.

Our plan is to open three to five retail stores per year in this territory and to continue to grow our wholesale business. True Religion Brand Jeans Germany has a full staff of experienced and talented people, and under Reinhard's leadership, we look forward to accelerated growth in the region.

With regards to our international business in general, we continue to see it as under-penetrated and a major growth opportunity. In addition to the JV, we will look to establish a regional headquarters and other infrastructure in Europe to more directly manage and accelerate our growth in the region.

Retail would be a significant part of our European growth plan. In addition to the Cologne store performing well, our store in London's Covent Garden is also performing above expectations. You will remember that our Asia-Pacific business is headquartered in Hong Kong and is headed by John Geering, our Managing Director for the region. We will be moving into a new showroom in Hong Kong shortly and are also opening a new showroom in Seoul to support our growing business in Korea.

Our business in Japan is performing well and the store we opened on Cat Street in Tokyo is exceeding our initial plans. We have a solid business foundation and a talented management team in Asia-Pacific. Over the next couple of quarters, we will develop a more detailed plan to leverage these assets into a bigger business.

Finally, we are pleased to say that our Spring 2011 line was very well received at last month's Bread and Butter show in Berlin. This is the first time that we have launched our full spring collection for Europe at the show. Thanks to Jeff's leadership of the design team and Lynne's work with our product development team, we were able to accelerate our go-to-market calendar and launch the Spring line approximately one month earlier than prior years.

Having our seasonal product launches in sync with European trade shows will allow us to aggressively grow our wholesale business in the region and it also allows us to get feedback in the line and fine tune the collection for Project [Corduroy] in our Asia pacific trade shows. However, more important than the timing of the spring launch is the fact that our new spring 2011 product was enthusiastically received by our [potential launch] customers.

Our new jeans collection, and denim related sportswear including various types of twill and poplin bottoms were especially well received by our European customers. Based on this early feedback, we are optimistic about the performance of our Spring 2011 collection, for our international and domestic wholesale businesses, as well as our retail stores around the world.

Now I would like to ask the operator to open up the call for questions, operator.

Question-and-Answer Session


Thank you. Everyone please note, in the investor relation section of the company's website at the company has posted a schedule that reconciles its 2010 results on the GAAP basis to the adjusted 2010 results which may include of separation costs. (Operators Instructions) Our first question is from Eric Beder with Brean Murray, Carret & Co; please proceed with your question

Eric Beder - Brean Murray

Could you talk a little bit about, I guess for the mall though, the flow of the quarter in terms of comps, and when you look at, we have talked to before about how mall stores versus side walk stores have done differently in your store group, will you see the same kind of split in the quarter?

Jeff Lubell

The way that the same stores sales have trended during the quarter Eric was, April and May were overall good. What we found was that June was a very promotional month at retail and that was the month that kind of was the lowest out of the three within the quarter. So we started out a little bit better and then finished off with the 6.7% increase for the quarter and again just saw lot of very promotional activity at retail in the month of June.

From a mix sort of format perspective we didn't see a lot of specific trends there and it was just a more really that the kind of became month-to-month and what was happening in the overall environment that we saw impacting our same-store sales in the quarter.

Eric Beder - Brean Murray

When you look at international, I know that Germany is the most developed in terms for joint venture but who else do you look at where your markets are, I guess mature enough to I guess the UK one of the market that is mature enough you continue think about direct penetration in terms of those markets or joint venture in the way of distributors?

Mike Egeck

Hi, Eric. This is Mike. To answer to your question it's little premature first to go into any detail on our plans for Europe. The UK is our next largest market in that region. We are very happy with our current distributor there. We are also happy with the performance of our store in London. So we will be looking at grow both our wholesale and retail businesses but other than that we don't have anything to talk about in terms of plans for the region.

Eric Beder - Brean Murray

All right. Then shifting back to the US your internal sales force now fully in place, I mean A is fully in place and B, should we look upon the second half of 2010 as really where the true impact here or this really going to be in 2011?

Lynne Koplin

This is Lynne. They are fully in place including our retail coordinator program that we people in the field in the store. I think you're definitely going to see an impact. They are very well entrenched, have relationship with all the key accounts and handle on the spatiality store situation, I think you'll see definitely an impact in the second half.

Eric Beder - Brean Murray

Okay. Finally, I just to confirm that you have made basically the only change to the overall annual guidance was due to the separation agreement in terms of EPS, right?

Jeff Lubell

Okay, that's right Eric.


Our next question comes from Todd Slater with Lazard Capital Markets.

Diana Katz - Lazard Capital Markets

Hi, this is Diana Katz for Toddy Slater. I wanted start off with some of the trends at retail, with the [comps] slowing in June and July. Are you kind of seeing a same sort of softening or a similar softening in the retail channel that you are seeing at the US wholesale channel?

Lynne Koplin

No, I wouldn't say that. I would say to Pete's point that basically because of the late spring, late May into June was a highly promotional timeframe. In lot of the wholesale accounts, we are regular priced brands and I think that's where you saw the impact but our cadence remains the same. We maintain a regular price business at all times at our full line stores and that is way we will keep it.

Pete Collins

The other thing that you recall Diana is that Lynne talked about in her remarks was the changes we made, the way they were flowing merchandise in, and she commented in her remarks that we saw an improvement in the trend in July, we attribute that to the change the team has made in bringing in the four step in July. One way to counteract the promotional pricing pressure out there is to make sure you've got fresh innovative merchandise and so that's really what our focus is there is to have that fresh merchandise coming in regularly into the store.

Lynne had comments about the strategy so that the consumer comes in, she sees the merchandise, she feels she's got to buy it or if she comes back, it's not going to be there and that's flowing the merchandise in and out, that we are improving. So, the early results from July was favorable and we definitely improved the trend in July versus what we saw in June.

Diana Katz - Lazard Capital Markets

Great, we definitely liked that noticeable newness in the stores. I was also curious if you will be incorporating more alternative bottoms in your collection at wholesale like the [Katie], Misty in your own stores?

Pete Collins

Yes, definitely. There is a lot more diversification in the bottom offering in our product line.

Diana Katz - Lazard Capital Markets

Okay. Then, could you share with us the Men's and Women's average selling price in the quarter?

Pete Collins

We've moved away not just from a competitive perspective. So we talked about it coming down, I believe it was from 272 down to 246 on a year-over-year basis, but there is somebody here that used to work for another company who has given us some input on what others outside the company might be paying attention to. So we've kind of cleaned up some of those disclosures Diana.


Our next question comes from Christine Chen with Needham & Company.

Christine Chen - Needham & Company

Great, thank you. Wondering if you saw any geographic differences in the performance of your retail stores, if there was a substantial difference between factory versus full-price? Then I have a question about wholesale. Thank you.?

Pete Collins

Yeah, we did some differences in the regional performance and part of the improvements we are making from a planning, buying and allocation perspective is to make sure that we address those as we club merchandise in. So we are definitely focused on that and tuning the merchandise assortment to address that.

Christine Chen - Needham & Company

Then with respect to factory versus full price?

Pete Collins

Its really operated as just one integrated business and so there is nothing to call out there.

Christine Chen - Needham & Company

Okay, can you share with us which regions were the better performing regions?

Pete Collins

No, from the competitive perspective we like to just to keep it at the overall business.

Christine Chen - Needham & Company

Okay. Then with respect to wholesale, I do in the past it wasn't really your policy to give part down money and in this environment, where the buyers at the department stores might be looking to squeeze every dollar they can, do you feel like that hurts you in your positioning and how do you plan to address that, or has that policy changed?

Lynne Koplin

The policy has not changed basically and I don't think it really has trued us. Because we are working a lot more closely with our accounts now, we are making sure that we fine-tune that product goes into the stores and making sure that door distribution is correct and the product is turning. That is our whole sale accounts biggest priority right now, its product turn and that is what we are focused on.

Christine Chen - Needham & Company

Then you called out that men's performed better at wholesale, was that also the case at retail? If you said that already, I apologize, I missed it?.

Lynne Koplin

Honestly I would say in our retail stores, they are both performing. Mens has been a consistent performer, as also we have a category known as super T, which continues to perform very well, largely because it fits into our stores, so we just see some nice momentum in men's, but they are pretty consistent.


Our next question comes from Eric Tracy with FBR Capital Markets.

Eric Tracy - FBR Capital Markets

Good afternoon, if, you could just talk about in terms of the retail, the fewer doors this year, it doesn't seem like a lot but I guess a couple getting delayed, does that it all change sort of the view on an annual basis, in terms of sort of retail doors, kind of talking about around 20 a year for FY '11, is that still intact?

Pete Collins

It's really not. It's a more of function of just we felt these doors were definitely getting half in this year and then we found as we were pretty far long in the year that there were factors that we are going cause them to not yet open in this year.

So instead of looking to another opportunity that was maybe slated for 2011, we are really working with those existing developers to try and find the right spot in the centers that we are interested in. So we didn't shift anything up but it doesn't impact the overall idea, the overall plan that there is roughly 20 in a year that we can open.

Eric Tracy - FBR Capital Markets

Okay. Then with respect to the wholesale, Lynne, maybe if you could just talk to again clearly got some successes at the boutiques and sort of drawing on that with the majors, and then how True Religion sort of thinks about balancing, being a trendsetter versus maybe at least adopting the current trend and then more fully participate going forward?

Lynne Koplin

I think we have had success with boutiques because it was kind of an area of low hanging fruit so to speak. There were lot of doors that because we have increased specialty store coverage and our sales force who were able to go out and really find new opportunities out there in terms of account.

In terms of the product orientation, generally I think and this is proven in our retail stores, it's about balance. It has good core products that you are consistently replenishing in your stores and then balancing that with the newest fresh product.

That's really the approach that we are taking is that's really making sure that we got some of our core products in place plus new units for all times.

Eric Tracy - FBR Capital Markets.

Sort of following on that again just on from a pricing perspective, well, it was probably promotional sort of seasonally at wholesale. It does appears sort of systemically removing lower, particularly within the major department store.

Again, True Religion's strategy going forward, is it going to be continue at the margin to try to pick some share or is there potentially, because I think Lynne you had mentioned in the last quarter that you should have anticipated as the trends came back around in the favor in the fall that you might see a up-tick in ASPs, but assuming things sort of systemically going on that may change the True Religion strategy?

Lynne Koplin

No. I think in the second quarter in terms of, if you look at what the product is seasonally, for instance in women's with the shift, into two categories like shorts and opening price points, it just generally brings that price a little down, I think as we go in the fall we start to look at product diversification and just newness and that we're offering, you're going to see a much return to higher price points.

The market has been fairly basic and I think we're all motivated to offer newness, which commands a higher price and I think that's the general trend you're going to see going into the next two quarters.


(Operator Instruction). Our next question comes from Dorothy Lakner with Caris & Company. Please proceed with your question.

Dorothy Lakner - Caris & Company

Just a couple of questions. One, I guess this would for Lynne, in talking about one of the majors moving the brand to another department. I think I know what you are referring to and I'm just wondering if the plan is to move all of denim to that department Can you help me understand why that's a positive, I am assuming it would be all of the denim is going to be presented in one place, but I am just wondering if you could give me a little color there?

Then, also, you may have already said this, but in terms of some of the non-denim bottoms that you have in your own stores and by the way the four step, I think looks fantastic, are majors and boutiques obviously sound like they are a little bit more forward thinking, but are the majors sounding a little bit more amenable to bringing in some of that product?

Then, lastly, just what the performance has been on the international front between Men's and Women's? Is there the same kind of difference and lower price points on the Women side internationally as there has been in the US? Thanks.

Lynne Koplin

Okay. Going back to the first part of the question, I am really not privy to exactly what they are doing in terms of other denim brands. I see it as a positive for our brand, largely due to the fact that this department is funded much more adequately to really run this business effectively.

Dorothy Lakner - Caris & Company


Lynne Koplin

A lot of our business is just a thing on [all-board] basis is a replenishment business and you really need the funds to be able to support that appropriately and plan and allocate the product accordingly.

Dorothy Lakner - Caris & Company


Lynne Koplin

So I think it's a positive from that standpoint. You are much more privy to what's going on from a trend standpoint with your competitors and that to me is also good information to have.

Dorothy Lakner - Caris & Company


Lynne Koplin

Second part of the question?

Pete Collins

Dorothy, I'd happy to take the second part. It's just that the trend in International as far as gender goes was similar to the US, we didn't see any real differences there.

Dorothy Lakner - Caris & Company

So, in other words, there being some price question on the Women's side?

Pete Collins

Yes, you will find that, the trends for women, and it is just into that, cleaner darker…

Dorothy Lakner - Caris & Company

Cleaner, darker.

Pete Collins

Yeah, and that we made at lower price points, because of the cost estimates.

Dorothy Lakner - Caris & Company

Okay. Then I guess the middle question that I had in the second there, was just on the non-denim bottoms that you have. You seemed to have had some success with like the [Katie] in your own stores or some of the majors and the boutiques, getting into some of that product.

Lynne Koplin

Definitely, and they had it, actually for [strength], I mean we had some non-denim fabrications in both Men's and Women's and it was very successful and going forward, we will be expanding that category flow.


There are no further questions in the queue, at this time. I would now like to turn the floor back over to management for closing comments.

Jeff Lubell

I want to thank everyone again. This does conclude today's teleconference. You may disconnect, I am sorry about that. Thank you for your time today, we greatly appreciate your continued support and interest in True Religion. As always if you should have any follow up questions, please do not hesitate to contact Pete Collins or ICR, and once again thank you very much.

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