May 12, 2013

TRLG – The Wisdom To See The Wood From The Tree

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TRLG Q1 Earnings

When in my previous post I forecast that TRLG would disappoint either this earnings release or soon I have to admit I was hoping to be right and sooner than later. I could not have imagined that what I would get would be even better, and that I would be dead wrong.

Here’s what happened: according to Forbes analyst’s were looking for earnings per share to be 34 cents per diluted share, against 41 cents in Q1 2012. Adjusted for expenses related to acquisitions and executive termination, earnings were 22 cents. A solid miss by any measure. But it didn’t matter; True Religion announced they are being acquired by ToweBrook Capital Partners for $32.00 per common share. The stock immediately popped 8% leaving anyone who was short to be carried out on a stretcher.

I can’t short stocks because of my employer doesn’t allow it, so I wasn’t involved. But honestly if I could I probably would have been short a small amount and taken a hit. Like everyone else I knew there was a chance they’d be taken over; they announced they were exploring options, and even fired the CEO. But I figured if it was going to happen they wouldn’t do it on the day of an earnings announcement – obviously I don’t really know how these things work – and they did.

In the end this actually worked out better than I could have hoped for. I didn’t lose any money, and I learned a lesson; How you can be right on one aspect of your thesis and still make a decision that is operationally wrong. In investing, you don’t get many free lessons like these.

My Two Cents On The Deal

Interest rates are at all time lows, the junk bond market is on fire. This may have been bound to happen once they got the CEO out of the picture. And net-net the transaction actually kind of makes sense for everyone.

For the shareholders, aside from the near impossible task of the board finding a solid executive team to replace the existing bunch, this was probably the best option (take the money and run). The buyers at Towerbrook probably figure they can take the cash out, lever this sucker up and keep the ship afloat, that everything will be alright. Hell, they might even get lucky and find someone with some taste to spice up the offerings and really make some money. Everyone might win.

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Nov 7, 2012

True Religion – Was I Wrong?

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Was I Wrong about TRLG?  The short answer is yes. After some insightful comments from readers of my last article:  True Religion: An Arbitrage Bargain or Value Trap I’ve realized that I made an error in my valuation. As you will note, in the below table I subtracted the present value of operating leases (3) from […]

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Oct 20, 2012

True Religion (TRLG) : An Arbitrage Bargain or Value Trap?

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Business Overview True Religion, which went public in 2003, has been a leader in the premium denim market over the past decade.  The business is involved in the design, manufacture and sale of premium denim clothing, primarily their jeans which retailed for $255.00 on average in 2011. Though in recent years the company has expanded […]

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