The clothing retailer True Religion Apparel, Inc. (NASDAQ:TRLG) saw its stock pushed up over 20% after posting earnings last week; is the stock now too expensive to consider it a buy? It doesn’t appear so. The retailer’s EPS came in at $0.55, compared to analysts’ estimates of $0.53, with revenue up 14.7% from the same quarter last year. What really helped push the stock up was upgraded guidance. The company boosted first quarter 2013 EPS guidance to a range of $0.33 to $0.35, and full year 2013 EPS $1.89 to $1.95. The mid-range full year 2013 guidance now falls above previous analyst expectations of $1.91 per share. This better than expected performance and upgraded guidance suggests that True Religion’s turnaround is showing signs of taking hold.
The apparel business should be able to see positive revenue growth from a rebounding economy and higher employment. Retail numbers came in strong (reported earlier) for January, which has shown a strengthening in consumer spending. This should be helped even more by the low cost nature of the apparel business. True Religion designs and makes fashion apparel, centered on denim jeans. After a couple years of tough performance, being pressured by a decline in consumer spending, and overexposure to the jean market, the stock is now considered a turnaround play.
Other major clothing retailers include V.F. Corporation (NYSE:VFC), Ralph Lauren Corp (NYSE:RL) Warnaco Group Inc (NYSE:WRC), and PVH Corp (NYSE:PVH). All of these major retailers have also been showing strength via positive earnings releases. V.F. Corporation (NYSE:VFC) posted 3Q results of $3.52, compared to $2.87 for the same period last year. Its staple brands, North Face and Vans, were big parts of its outperformance, while its struggling Timberland brand is working toward growth in profitability. To boot, the retailer pays a 2.3% dividend yield (check out a SWOT analysis of VF Corp). Ralph Lauren recently posted its 3Q results, with 3Q 2012 EPS of $2.31, compared to $1.78 for 3Q 2011. This was on the back of 2% higher same store sales and 4% higher total sales.
Back to True Religion, there has also speculation that the company could be a takeover target. It has been reported that the likes of WWD and Sycamore Partners could be interested in purchasing the company. In late 2012, Nike sold off its Cole Haan unit to private equity firm Apax Partners for $570 million. From a valuation perspective, True Religion is indeed cheap, trading the lowest on both a price to earnings (next year earnings) and price to operating cash flow basis:
| True Religion | VF Corp | Ralph Lauren | Warnaco | PVH Corp | |
| Price to Earnings (next year earnings) | 13.1 | 14 | 19 | 16.6 | 16.8 |
| Price to Operating Cash Flow | 12 | 13.9 | 17.1 | 20.7 | 15.2 |
| True Religion | VF Corp | Ralph Lauren | Warnaco | PVH Corp | |
| EBITDA Margin (TTM) | 19.80% | 14.80% | 19.30% | 11.90% | 13.80% |
| Debt Ratio | 0% | 25% | 0% | 14.70% | 26% |
The article The Truth For True Religion originally appeared on Fool.com and is written by Marshall Hargrave.
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