1. SECTOR: Consumers COMPANY: True Religion
Anna: Hello we are the Consumers sector and we research TRLG. My name is Anna and you will hear from the junior analysts Amanda, Bridget, Moly, Jonathan, Pradeep, and Andrew. And Jonathan will get started.
Sr. Analysts: Anna Braet
Jr. Analysts: Amanda Cannizzio, Bridget Eastes, Moly Fang, Jonathan Garnick,, Imran Hossein, Jenny Kwong, Leslie Mullings, Pradeep Mahtani, Andrew Walters

2. Investment Recommendation
Company
Recommendation
BUY
Current Price
23.31
1yr Target Price
31.79
% Upside
36.4%
Key investment drivers
1. International Expansion
2. Movement to Consumer-Direct-based Business Model
3. Attractive Comparables
Jonathan: Just walk us through this logically. “after conducting our research and valuation we recommend TRLG as a BUY with a current price of and a 1 year target price of which is a 36.4% upside! Our key investment drivers are ….

3. Premium Brand Denim & Apparel Industry
The Premium Brand Denim & Apparel Industry consists of companies that design, manufacture, and distribute high-end apparel and accessories through distributors and company retail stores, with a specialized focus on luxury denim products to be sold to young-adults with high discretionary income.
By Revenue
Industry Market Share by Revenue
Textile and Apparel $305 B
Apparel 49%
Denim/
Apparel
20%
Luxury Denim 3%
Jonathan: give us the definition quickly and explain briefly the charts – luxury denim is 3% of the textile and apparel industry etc…. And TRLG takes up 2% of the industry market share broken down by revenue.. Etc…
Then transition: ex: Next is Andrew who will introduce you TRLG

4. True Religion Company Snapshot
Market Cap
Revenue
Beta
Gross Margin
EBITDA
EPS
P/E
570.42M
$311M
1.72
63%
84M
1.75
10.8
Andrew: just give us the basics on this slide … that TRLG follows the S&P 600 and even outperformed the benchmark during the recession

5. Outsource Production to U.S. (denim), In-House Distribution
TRLG Value Chain
DESIGN
Outsource Production to U.S. (denim),
Mexico, Asia
Raw Materials
In-House Distribution
Showrooms (CA and NY)
Direct from TRLG to Customers
Branded
Retailers
Department Stores & Boutiques
Andrew: You know what to say! Juts walk us through this logically – design in california… etc…. Give % too if you can  –- make sure to explain exactly what we mean by consumer direct, branded retailers, and wholesale etc…. Christian wants us to be sure to clarify everything. Also, Christian wanted me to add In-House to show that TRLG runs its own showrooms…
Transition to Moly with information on Expansion
L- 1.4
CD- 41.5
Wholes 39.6
Int 17.5
Licensing
Accessory Manufacturers

6. International Expansion
Headquarters: Switzerland, Japan, South Korea, Hong Kong, Germany
Joint Venture with German Distributor UNIFA Premium
Reduce Distribution costs
Moly: Trend: International Expansion: headquares show where they are putting most of their attention in terms of expansion > talk about Japan/Korea and other if you want (opportunities: The size of the denim market in India is about million pairs. It’s a large structured industry growing at about 15-20% a year.)
Then discuss joint venture which will reduce distribution costs and increase efficiency>> explain that TRLG plans to open 3 (minimum)-5 (maximum) stores every year in the area to be run by German distributor
Transition: say something like and now Pradeep with more on TRLG’s expansion
3/25/2017
BU Finance & Investment Club
Source: Company Filings

7. BU Finance & Investment Club
TRLG Expansion
Total Store Openings:
101 stores in 5 years
Saturation around 1000 stores
Expanding faster than competitors
VFC: 50% marketing on sportswear
BKE: not abroad
GES: approaching saturation
Pradeep: This slide is all about how well TRLG is positioned for growth (both internationally and domestically).
1.) TRLG is positioned well for growth – opened 101 stores in 5 years and most apparel retailers reach saturation points at 1000 stores (meaning they have already filled most of their growth potential when they hit 1000 stores…. So TRLG has a lot of room to grow)
(7 -4 in japan, 1 in uk, 1 in canada, 1 in germany in 2010… open 8 more this year abroad, and 15 domestically)
2.) explain graph a little – opened first store in 2005 and have shown great historical growth – plans for 2011 show continuation of this growth
3.)Talk about main competitors – TLG expanding faster : VF Corp is using resources to market new sportswear lines – not expansion, Buckle is not abroad, and Guess is already close to saturation
Transition: pass along to Amanda to discuss changes in business model… something like that
3/25/2017
BU Finance & Investment Club
Source: Company Filings

8. Movement to Consumer Direct
Motivations:
Department stores
Profit margins
Premium Brand
Maintain >30% gross margin
Amanda: This slide and the next go together so the notes will tie in together as well. These two slides should be relatively quick but don’t rush… just briefly touch on the chart showing % sales breakdown and reasons TRLG wants to move away from wholesale >> you don’t have to say all of them but definitely touch on the Dept stores issue and the fact that having their own stores maintains premium brand identity, etc..
**** Recap on what each segment means: Consumer direct is brick and mortar TRLG stores and internet sales. Wholesale is sales to department stores and boutiques… etc… the e-board just wants us to clearly explain the difference between c.d. and wholesale….
3/25/2017
BU Finance & Investment Club

9. Movement to Consumer Direct
Benefits:
Display space
More control
Avoid wholesale pricing
Maintain >30% gross margin
Amanda: This slide shows what the % sales breakdown will look like this year. Plans to increase Consumer Direct by 20% this year and reduce wholesale by 20%. Benefits: more floor space and control and can avoid selling at a discount to wholesalers (definitely mention this) and will allow them to continue to maintain at least a 30% gross margin. Please explain that this change means an increase in brick and mortar TRLG stores and a decrease in sales to wholesalers in department store… etc…
3/25/2017
BU Finance & Investment Club

10. Attractive Comparables
No debt – no plans to assume debt
Cash financing of expansion
Gross Margin
Sales per Square Foot
4th Qtr Same-Store Sales Growth
Inventory Turnover
63%
$1818
7.2%
3.83
16%
$428
6.3%
5.64
47%
$6691
-6.0%
1.79
Amanda: just retouch that TRLG is well positioned for changes and expansion because it has no debt and no plans to assume debt – plans to finance all through cash internally. Mention just Gross Margin being higher than competitors and 4th QTR same store sales growth too. Can say that Inventory turnover is in the middle showing an efficient turnover of resources.
****Joes jeans sales per square foot is so much higher because it only has 6 stores. It has 2 full price stores and 4 outlet stores.
Transition to Bridget with our Valuation of TRLG
3/25/2017
BU Finance & Investment Club

11. Valuation Year 2011(e) 2012(e) 2013(e) 2014(e) 2015(e) FCF $ 68.46$ $ $ $ $
DCF
WACC
13%
Growth Rate
2.5%
DCF Value
760.87
1yr Price
37.20
Comparables
Price/Sales(25%w)
1yr Price
22.81
EV/EBITDA(25%w)
29.95
Bridget:
Say something along these lines….
After valuating TRLg we projected unlevered Free Cash Flows from 2011 to In the discounted cash flow model we used a weighted average cost of capital (WACC) of 13% and a growth rate of 2.5% which gave us a total equity value of million $ and a 1 year target price of 37.2$. We compared TRLG using the price to sales multiple and EV/EBITDA giving respectively 1 year target prices of and We weighted the DCF and Comparables at 50% each which gave us a final 1 year target price of 31.79$ with a %upside of 36.4%.
50% Weight
50% Weight
1yr Target Price
31.79
% Upside
36.4%

12. Risks & Sensitivities 25% 25% 25% 25% 100%
This graph shows TRLG’s sensitivity to risks such as increase in raw materials costs, brand dilution, and lack of success in the consumer direct or international segments. We then weighted all of the risks equally for a weighted risk 1 year target price of
*** They might ask a question about why we weighted them equally instead of doing a “worst case scenario” risk…. And the answer is that we felt there was no substantial way to predict which risks are more likely to occur… but we do however feel like brand dilution is less likely as TRLG has taken steps to avoid this risk >>> such as moving form wholesale to brand name stores and reducing the number of inventory sales to discount retailers. Etc…
25%
100%

13. Recommendation Key Investment Drivers: 1. International Expansion
Company
TRLG
Recommendation
BUY
Current Price
23.31
1yr Target Price
31.79
% Upside
36.4%
Key Investment Drivers:
1. International Expansion
2. Movement to Consumer-Direct-based Business Model
3. Attractive Comparables
Bridget: conclude with a brief recap: We recommend TRLG as a STRONG BUY with a 1 year target price of 31.79$ and an upside of 36.4% based on TRLG’s international expansion, movement to consumer direct, and attractive comparables. Thank you and we now welcome questions.

14. BU Finance & Investment Club
Questions?
3/25/2017
BU Finance & Investment Club

15. BU Finance & Investment Club
Back Up Slides
3/25/2017
BU Finance & Investment Club

16. Trends and Opportunities
International Expansion:
Japan, Europe
India
Cost Reduction:
Lighter fabric for jeans
$3 million in capital expenditures for new technology
Product Development:
Expansion of licensing for accessories
Sportswear to compete against VFC
Industry Trend is international expansion
opportunites: The size of the denim market in India is about million pairs. It’s a large structured industry growing at about 15-20% a year.
-will talk about Japan and Europe next
3/25/2017
BU Finance & Investment Club

17. International Sales: 17.5%
TRLG Revenue Chain
Consumer Direct: 41.5%
Sales
U.S. Wholesale: 39.6%
International Sales: 17.5%
Licensing – 1.4%

18. Risks
Cotton Price
Cotton prices at end of October about $1.50 per pound, an 80% increase from beginning of 2010
Cotton Future High
Cotton Future Low
Average Price of Premium Denim
2010
(Oct.)
71.89 (Jan.)
~$180
2009
73.63
42.63
2008
77.75
42.17
Moly
As you can see, Price of premium denim had insignificant changes because these companies have such a high profit margin (revenue-COGS)/Revenue. And the price of designer deniim does not correlate to prices of cotton. However, Companies may begin to raise price if cotton prices continue to rise..
NYTimes.com, WSJ,