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TRLG Short Sale Synopsis

|Includes: True Religion Apparel, Inc. (TRLG)

Dr. Kellegro has initiated a substantial short position in TRLG after Lazard upgraded shares of the stock to buy from hold only a couple months after lowering the shares to hold from buy. Typically, incoherent moves like these by members of the analyst community point to conflicts of interest that involve courting future business from the company involved in the upgrade. The ratings system on Wall Street has been used as leverage against companies to win further business from them for the firm initiating the upgrade. An appreciation in market value such as the one TRLG experienced today is traded for future service income to that investment firm. It is no coincidence that shortly following the November downgrade of TRLG a meeting took place between Lazard and TRLG. And now comes the upgrade, as the promise of further business either from the company itself or the executives involved in the company is a virtual guarantee.

What is important to note about TRLG – as a company - is that it has been losing market share in its segment versus competitors. Given economic conditions specialty jean companies are not easily getting the $75-$300 price tag that their jeans command. In TRLG’s case they have taken on an ambition expansion plan for individually branded stores at precisely the wrong time. I am sure that in management’s mind opening new stores while lease rates are favorable and choice locations are becoming available will make their venture successful. However, what management has not taken into account is that TRLG is a fart in the wind. A fart in the wind that attracted some attention for the past few years but is now fading back into nothingness. And now they are adding to their potential liabilities by taking on long term leases and the expenses of opening 100+ stores over the next however many months/years. Add to that the fact that they have been losing focus, moving away from the bread and butter of the company - which has been jeans - into jackets, shirts and apparel that will make their burgeoning number of stores look more “consumer friendly”. After all, you can’t have 100+ retail stores that only sell different colored jeans.

Now let’s move to the insider selling. It seems that insiders at the company enjoy selling shares between the $20 – $30 range, as they too realize that their share price and their brand is a fart in the wind. The insider selling between $20-$30 over the past year has not just been substantial, it has been monumental. With the founder of the company, the originator of the fart, if you will, dumping a majority of his shares over the past two years. Now I ask you, if their blindly ambitious plan of expansion was as monumental as the company or Lazard would have you believe, why would the founder and CEO of the company be dumping shares of TRLG at such an astounding rate?

In TRLG you have the perfect confluence of factors:

1. A specialty retail stock that did what specialty retail stocks do during their life cycle: go from obscurity to becoming a recognizable brand. The life cycle becomes complete when the fickle public moves onto the next specialty retail name. TRLG is in the latter stage of this life cycle as consumers are beginning to move away from the brand.

2. An inept management team that is A) trying to keep the stock price inflated with pie in the sky dreams of success through expansion B) dense enough to actually believe that their plan of expansion will lead to increased revenue and brand recognition independent of consumer spending habits C) unfocused and moving away from the business that got them to this point in the first place.

3. Insider selling that is not substantial but monumental, with the leader of the pack being the founder of the company himself.

TRLG, with its current market value, is a deception and an outright lie. It should not only be avoided by prospective investors, but taken advantage of by those astute enough to recognize the vast number of flaws apparent within the company.

Disclosure: Short TRLG