True Religion Apparel Reports 2007 First Quarter Financial Results
Significant Growth in Branded Retail Sales Drives Gross Margin to Record 56.3 Percent; Retail Store 4-Wall Operating Margin Exceeds 45 Percent

True Religion Apparel, Inc. (Nasdaq:TRLG) today announced financial results for the first quarter ended March 31, 2007.

Net sales for the 2007 first quarter were $36.1 million, up from $35.6 million in the 2006 first quarter.

True Religions consumer direct business, which includes e-commerce and its growing branded retail rollout, increased significantly to $4.1 million versus $677,000 in the first quarter of 2006. The companys U.S. wholesale sales in the 2007 first quarter were $25.1 million versus $25.6 million in the comparable period last year. The slight decrease primarily reflects a significant expansion of retail doors in the 2006 first quarter that necessitated both initial build-up of merchandise along with replenishment for sell-through. In the most recent quarter, the companys sales were primarily for replenishment of retail sell-through. The international wholesale business was $6.9 million in the 2007 first quarter versus $9.3 million in the comparable period in 2006 primarily reflecting anticipated lower sales in Japan.

Gross profit in the 2007 first quarter increased to $20.4 million from $18.8 million in the first quarter of 2006, underscoring stronger sales in the consumer direct segment. First quarter 2007 gross margin grew to 56.3% compared with 52.7%, in the same period last year.

We are off to a strong start for the year, said Jeffrey Lubell, chairman and chief executive officer of True Religion Apparel. Our business is on plan, and we believe we have made the right investments over the past six months to further secure our foothold as a denim-inspired icon brand. Our retail business is expanding and providing very favorable financial metrics, and most importantly, our new product continues to resonate strongly with our customers and consumers. Our outlook for the year is very positive and should be marked with increasingly favorable results as 2007 unfolds.

Selling, general and administrative expenses increased to $13.7 million in the quarter from $8.2 million in the same period in 2006. SG&A expenses excluding non-cash restricted stock expense and certain unusual items amounted to $8.4 million versus $7.0 million in the first quarter of 2006.

The company recorded $2.4 million in unusual charges in the quarter. These include a change in the accounting method for recognizing restricted stock grant expenses to better align such expense with the vesting schedule, resulting in an additional $1.2 million of pre-tax expense in the 2007 first quarter. Also, reflecting the build-up in the companys design and finance departments and the departure of a former vice president of womens design and a former CFO, incremental costs of $1.2 million associated with the separations were recorded in the most recent quarter.

In addition to the aforementioned unusual items, the company had $3.1 million of additional costs of which $1.3 million reflected operating costs for the continued growth in the companys consumer direct segment. The company also incurred an additional $1.7 million in non-cash restricted stock expense for the stock grant that was given in January 2007. The remaining SG&A cost categories overall were flat compared with the same period last year with a reduction in sales commissions offsetting increases in occupancy and management costs.

Excluding the above-mentioned $2.4 million in unusual charges, which together amounted to approximately $1.4 million after income taxes, or $0.06 per diluted share, adjusted net income was $5.6 million, or $0.24 per diluted share, which exceeded the companys plan of $0.23 per diluted share. This compares with net income of $6.5 million, or $0.28 per diluted share for the first quarter of 2006. On a reported basis, and calculated in accordance with GAAP, net income was $4.2 million, equal to $0.18 per diluted share, versus $6.5 million, or $0.28 per diluted share in the first quarter of 2006.

Management believes that including non-GAAP net income and net income per diluted share for the current period provides a useful and relevant measure for comparative year-over-year operating performance. Refer to the attached table for details regarding the basis for the adjusted net income per diluted share calculation.

2007 Financial Guidance

Based on its current visibility for 2007 and giving effect to various growth initiatives underway at the company, True Religion reiterated its previously reported financial guidance of net sales of approximately $167 million, reflecting a 20% increase over 2006. Excluding the first quarters unusual expenses of $2.4 million, which together amount to $0.06 per diluted share, earnings per diluted share guidance remains unchanged and is anticipated to be between $1.24 and $1.27 for the year.

Investor Conference Call

True Religion management will host a conference call to discuss the financial results and answer questions today at 4:30 p.m. ET. The conference call will be available to all interested parties through a live webcast at and Please visit the Web site at least 15 minutes prior to the start of the call to register and download any necessary software. For those unable to listen to the live broadcast, the call will be archived for a year at both sites. A telephone replay of the call will be available for approximately one week following the conclusion of the call by dialing (888) 203-1112 (domestic) or (719) 457-0820 (international) and entering passcode: 3624744.

About True Religion Apparel, Inc.

True Religion Apparel, Inc. is a growing, design-based premium global lifestyle brand. The company designs, manufactures and markets True Religion Apparel products, including its premium True Religion Brand Jeans. Its expanding product line, which includes high quality distinctive styling and fit, may be found in premier department stores and boutiques in 50 countries including the United States, Canada, Germany, United Kingdom, France, Spain, Scandinavia, Greece, Italy, Mexico, South America, Australia, South Africa, the Middle East, Korea, Japan, and China. For more information, please visit

This press release contains forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These statements are based upon our current expectations and speak only as of the date hereof. Our actual results may differ materially and adversely from those expressed in any forward-looking statements as a result of various factors and uncertainties, including uncertainties as to the nature of the apparel industry, including changing customer demand and tastes, seasonality, customer acceptance of new products, the impact of competitive products and pricing, dependence on existing management and general economic conditions. Our Annual Report on Form 10-K, recent and forthcoming Quarterly Reports on Form 10-Q, recent Current Reports on Form 8-K, and other SEC filings discuss some of the important risk factors that may affect our business, results of operations and financial condition. The Company undertakes no obligation to revise or update publicly any forward-looking statements for any reason.

Three months Ended March 31,
Net sales $ 36,148,617  $ 35,608,805 
Cost of sales


Gross profit 20,350,699  18,776,270 
Selling general and administrative expenses:
Selling and shipping 4,104,077  3,873,880 
Retail 1,455,314  113,375 
General and administrative 8,105,423  4,220,683 
13,664,814  8,207,938 
Operating income 6,685,885  10,568,332 
Other (income) expense:
Other expense, net 98,143 
Interest income (net of $10,843 and $12,897 interest expense, respectively) (440,943) (74,849)
(342,800) (74,849)
Income before provision for income taxes 7,028,685  10,643,181 
Provision for income taxes (2,846,000) (4,172,000)
Net Income $ 4,182,685  $ 6,471,181 
Earnings per basic share $ 0.18  $ 0.29 
Earnings per diluted share $ 0.18  $ 0.28 
Weighted average shares outstanding- basic 23,374,000  22,453,000 
Weighted average shares outstanding- diluted 23,584,000  23,432,000 

ITEM 1. Consolidated Financial Statements
March 31,December 31,
Current Assets:
Cash and cash equivalents $ 33,603,106  $ 44,877,637 
Marketable securities, available for sale 14,971,359 
Accounts receivable, net of allowances of $475,611 and $495,672, respectively. 5,769,992  6,331,736 
Due from factor, net of allowances (Note 3) 12,715,636  9,531,884 
Inventory (Note 4) 8,757,101  9,399,305 
Deferred tax asset 3,543,070  2,923,000 
Prepaid and other receivables 1,130,932  1,391,300 
Total Current Assets 80,491,196  74,454,862 
Property and equipment, net (Note 5) 8,435,555  4,993,432 
Other assets 880,596  719,051 
TOTAL ASSETS $ 89,807,347  $


Current Liabilities:
Accounts payable and accrued expenses $ 10,113,029  $ 9,170,611 
Accrued payroll, vacation and bonus expense 498,766  431,665 
Other accrued expenses 684,381  764,039 
Accrued incentive compensation 189,882  1,200,359 
Income taxes payable 2,640,234  625,767 
Total current liabilities 14,126,292  12,192,441 
Deferred property incentives 669,154  491,863 
Commitments and contingencies
Shareholders Equity:
Preferred Stock, $.0001 par value, 20,000,000 shares authorized, 0 issued and outstanding, respectively
Common Stock, $.0001 par value, 80,000,000 shares authorized, 23,443,895 and 23,001,529 issued and outstanding, respectively 23,454  23,011 
Additional paid in capital 22,668,882  19,323,150 
Retained earnings 52,280,671  48,136,880 
Accumulated other comprehensive earnings 38,894 
Total Shareholders Equity 75,011,901  67,483,041 

Three months Ended March 31,
Operating Activities:
Net income $ 4,182,685  $ 6,471,181 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 387,826  78,378 
Provision for bad debt (20,061) 93,019 
Non-cash stock-based compensation expense 2,617,146  1,537,000 
Deferred taxes 671,000 
(Realized) unrealized gain on securities 38,984  (7,538)
Changes in operating assets and liabilities:
Accounts Receivable 581,806  1,019,773 
Due from Factor (3,183,752) (5,399,086)
Inventory 642,204  (1,237,486)
Other receivable 260,368  608,696 
Other assets (163,890) 61,162 
Accounts payable and accrued expenses 942,418  (49,665)
Accrued payroll, vacation and bonus expenses 67,101  486,641 
Other accrued expenses (79,657) (395,009)
Accrued incentive compensation payable (1,010,477)
Income taxes payable 2,014,467  1,982,090 
Deferred property incentives 177,291 
Net cash provided by operating activities 7,454,459  5,920,156 
Investing Activities:
Purchase of property and equipment (3,827,605) (193,258)
Purchase of marketable securities (14,971,360) (6,056,147)
Net cash (used in) investing activities (18,798,965) (6,249,405)
Financing Activities:
Proceeds from exercise of stock options 69,975  82,272 
Net cash provided by financing activities 69,975  82,272 
Net decrease in cash and cash equivalents (11,274,531) (246,977)
Cash and cash equivalents, beginning of year 44,877,637  9,436,632 
Cash and cash equivalents, end of year $ 33,603,106  $ 9,189,655 
Supplemental disclosure of cash flow information:
Interest Paid $ 10,843  $ 12,897 
Taxes Paid $ 2,115,000  $ 1,518,910 

Non-GAAP Information - The table below shows the impact of specified items which occurred during the first quarter.
Reconciliation of non-GAAP performance measure to nearest comparable GAAP measure
Three Months Ended March 31,
(in thousands) 20072006
Net Income $ 4,183  $ 6,471 

Specified items:

Modification of method for recognizing restricted stock grant expenses 1,185 
Separation costs associated with departure of Chief Financial Officer and VP - Women's Design 1,184 
Taxes related to specified items (950)
Adjusted net income $ 5,602 


$ 6,471 
Reconciliation of non-GAAP performance measure to nearest comparable GAAP measure
Net Income per diluted share $ 0.18  $ 0.28 
Specified items:
Modification of method for recognizing restricted stock grant expenses 0.05 
Separation costs associated with departure of Chief Financial Officer and VP - Women's Design 0.05 
Taxes related to specified items (0.04)
Adjusted net income per diluted share $ 0.24 


$ 0.28 
Weighted average shares outstanding- diluted 23,584,000  23,432,000 

(a) - Excludes specified items.

In addition to disclosing results determined in accordance with generally accepted accounting principles, or GAAP, True Religion Apparel, Inc. (the Company) also discloses adjusted or non-GAAP results of operations that exclude certain items. Be disclosing this non-GAAP information, management intends to provide investors with additional information to further analyze the Companys performance and underlying trends. In order to better assess operating trends, management utilizes a measure of adjusted net income and adjusted net income per diluted common shares on a non-GAAP basis that excludes these specified items, net of tax effects.

Management uses this information internally for forecasting, budgeting and evaluating the effectiveness of the Companys operations strategies. Management believe it is important to provides inventors with the same metrics used by management to measure operating performance, which assists investors in analyzing the underlying trend in the Companys business over time.

Non-GAAP information should not be viewed as a substitute for, or superior to, net income or other data prepared in accordance with GAAP as measures of the Companys profitability or liquidity. Users of this information should consider the types of events and transaction for which adjustments have been made.

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