True Religion


As stated yesterday, True Religion will be presenting at the Brean Murray conference. One thing I forgot to mention yesterday, was that short interest actually INCREASED from December 15th to January 15th. There are now 4.9 million shares short. This is a little uner 20% of all the shares outstanding. If you watch the price action, you’ll see investors are now holding onto their shares. Its going to be harder to scare people out of the stock going forward. Add to that the fact that this is becoming an IBD darling, and we have alot of potential here.

My biggest concern for today will be the Fed meeting. It’s expected that rates will be raised, but the question will be with regards to the future. Will the rates continue to be raised? Bernake will now have control. So many questions. The market could take a dive in the afternoon. I’m sure there will be pretty light action in the Street until the anouncement is made.

I added to my gold position just right now to take advantage of the upward movement I think gold will see once the rate hike is announced.

Tomorrow they will be participating in the Brean Murray conference as mentioned in their press release last week.  I don’t really expect any significant news out of the presentation.  Maybe we can get a better idea of how the company is doing this quarter, what the current backlog is, and an approximate number on how much the Manhattan Beach store contributed to the bottom line.  I don’t think we’ll hear adjusted guidance.  Seems like the company wants to wait until the conference call to blow away the $.23 per share.  I think if they bring in anything less that $.30 there will be a sell off.

The fundamentals have not changed, so my outlook has not changed.  I would be buying on the dips right now.  I wrote a couple April 22.5 puts for $5.20 a share when the stock was at around $20.  I am looking into writing more puts if there is a pullback.

 

Today was a really good buying opportunity for TRLG. I bought a couple of July $25 calls this morning. I don’t know how much lower the stock will go before the conference call, but I must admit, I am feeling alot better with the price action in the stock right now. I feel that for the most part, the current investors are larger investors that won’t sell their positions so easily. I am no longer as nervous as I was back in October, and with good reason. We’re up signiciantly from that low of around $12.

Looking at the company’s number, its still trading at a forward PE of under 20, which I think is ridiculously low for a stock growing this fast. If you were to apply a PE of 30 for their 2006 estimates, we could see $35/share by the end of year. Look at growing competitors in their industry. PE’s between 30 and 40 are not uncommon. After the 4th quarter conference call, we may begin to see the market correct its valuations. We shall see. For now I’m buying on the dips, and will most likely sell the short term position after the conference call.

I also purchased some Google January 2008 $600 options. Its risky, but in all honesty, I didn’t put much into it, and it has the possibility of getting there over the next 2 years. We shall see.

After initially having doubts of the market’s ability to perform in 2006, I have turned into a cautionary bull for the next 6 months at least. I will cover this more in my next post, but right now I will have to discuss True Religion’s remarkable run up over the past 24 hours.

First, let me begin by stating that Lesser expects the company to pre-anounce 4th quarter earnings on or before January 10th. As stated in a previous post, I expect the company to beat this number, as it has proven to do so in the past.

This morning brought a ton of good news to the retail sector. First, was
Urban Outfitter’s as well as the entire retail sector’s increase increase in December sales. Secondly, was the initiated buy coverage by DJ Sterne Agee this morning. And then, jsut now, from what I’ve heard, the Goldman Sachs retail analyst said premium denim performed extremely well throughout the holiday season.

And to top that all, we are now in a short squeeze! Now, there are absolutely no shorts that are making any money from the previous 52 week high of $18.25. At some point, these guys will have to start covering, and that will send the stock higher with the buy side pressure alone. Grab a seat, because 2006 will be a truly exciting year for True Religion Brand Jeans.

To answer Mike’s question of whether True Religion will beat earnings in the 4th quarter, I would have to say I expect them to blow out the $.23 number. In fact, I think they may even beat 3rd quarter earnings of $.33 share.

First, I feel that the True Religion brand is still small enough that it will not yet be affected by seasonal ordering that the larger apparel companies are affected by. There is still plenty of room to grow for this company, particularly in the international market.

Second, the last time the company had an almost 4 month backlog, which was in July, the company reported a record quarter (3rd quarter). In the November 10 conference call, there was a backlog that was extending towards the end of March, going into April.

Third, all of the company’s year end bonuses were already expensed in the 3rd quarter. This will help margins and will increase earnings for the 4th quarter even if there is no significant increase in sales.

Fourth, management has a history of under-promising and over-delivering. If you look at all their numbers for the past year, they always low-ball estimates and beat them signicantly. Last quarter for instance, even after raising guidance significantly, they beat the high end of the rang by more than 10%.

I expect to see between $.31-$.35 per share for the 4th quarter. I’m not sure if they will up guidance, but if they do so, I don’t think it will be raised to more than $1.25 per share.

The part that I am most uncertain about is how management will announce. Last quarter, they made an upward revision the second week of October and then beat that number the second week of November. Will they do the same thing again for the 4th quarter? Or will they wait and blow away the low estimate of $.23?

How they tackle this is of more significance to me, mainly because of the short, and more importantly the naked short position that is out there. Since being listed on the Nasdaq in August, the company has had a power struggle with the shorts. The illegal naked shorts are what have been keeping the stock price down, and under what I feel is a fair value of $20. I will be elaborating more on this in another post, and how as individual investors Wall Street and the SEC are taking advantage of us.

True Religion Brand Jeans,TRLG, broke above $17 today. We’re finally returning to the levels we reached back in August, before the stock was listed on the Nasdaq. My first purchase was at $4.95 in November of last year. I have been steadily purchasing more as the stock has appreciated in value over that time, and is now, by far, my largest holding.

I personally view this company as one of the greatest growth stories out there right now. Management has consistently delivered, and has even over-delivered on their promises to shareholders. Consider this: In the company’s conference call in February of 2005, I believe management stated they expected to make $.55/share. When all is said and done, I think they’ll make a little under $.90/share this year.

Now past performance is one thing, but future prospects is the reason I’ve kept on buying more. The company recently opened its first store in Manhattan Beach, and plans to open 3 more stores in Las Vegas, New York, and San Francisco during 2006. The company is going to enter into between 10 and 20 new countries this year. They are also expanding their products selection and plan to enter into 2 new licensing agreements in 2006.

There is a huge short interest in the stock. Over 4 million shares short as of November 15th. Although the company has been on the SHO list for over 2 months straight, it has begun to climb incredibly. I think that at this point, we are about ready for a short squeeze. And it is for this reason that I think we could see $20 before the end of the year.

One thing to note is the insider selling of Lubell. He announced his plan to sell approximately 12% of his stake for an average price of $17.90 per share, selling no more than 300,000 shares per quarter. If you notice, he hasn’t sold anything since the stock has come back from its recent low. In fact, the board of directors have recently begun their buying of the stock at around 15.50. I feel this is a very bullish sign, and asserts management’s belief in the company.

Until management does not deliver on the promises they make each quarter, I will continue to hold my shares. Their track record has been very good so far, and I believe we are at the starting line of the next Diesel, Lucky Brand, Coach, Guess Jeans.

Along with the shares of common stock, I also own January $15 calls as well as January $17.50 calls. Depending on where the stock closes today, I will determine what I will do with the $17.50 calls.