True Religion (TRLG) Gross Margin Analysis
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Awaiting the earnings call and as a followup to my initial writeup on True Religion (TRLG), the company should have no problem improving their gross margin % rates. The only thing that the street will be listening to will be the sales results and the next year expectations. In addition to the revenue focus, I will be interested in how much the gross profit % has improved in this past quarter to see if this stock will be a gem once the economy turns around.
As you can see in the chart below, TRLG quarterly GP% [red line] has been improving from 50.8% @ March 2005 to a most recent 58.4% during the 3rd Qtr of 2008. This trends speaks clearly to how effective management was to switch the business model from a wholesale to a consumer direct line.
In the below exhibit, you will see the supporting quarterly data for the last two years by business segment. This also show that the consumer direct business line is growing the fastest for sales, driven by the new store openings. Since the company is taking out a distributor margin in this segment, you will notice the gross margins are approx. 2500 basis points higher than the wholesale line.
Be careful to evaluate the sales line on total sales dollars increase from previous year or quarter, the true metric is same store sales growth. This metric will evaluate how the firm is doing operationally rather than taking the sales benefit of the new store openings….Once the TRLG earnings are posted, I will provide a post that discusses the same store sales metric for this company.
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Author Disclosure: At the time of posting, I do not own/short TRLG stock.
3 Comments on this post
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Donald Bourcier said:
How will you calculate same store sales values? In the past, I don’t recall the co providing this info. I agree that it would be interesting to know that value. However, don’t underestimate the impact on financials of new store openings given the very short time required to pay off the new store opening costs. In that vein, I think equally important for future financial impact is the marginal net profit of each succeeding new store opening (i.e., as a new store opens, does it increase, decrease, or have no change in the average profitability of all stores.). If mgt has selected the most profitable ones to open first, then the average should continue to decrease over time as new stores open. The big question is how much does it decrease.
January 24th, 2009 at 8:10 pm -
Karen said:
TRLG’s earnings report is out. What do you think of TRLG now?
February 27th, 2009 at 5:10 pm
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