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ElCid16 (98.07)

Good report from TRLG; initiates dividend.

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May 02, 2012 – Comments (1) | RELATED TICKERS: TRLG

True Religion reported some pretty good news, which included 14% revenue growth, 13% same store sales growth, and a drop in SG&A costs.

The company also decided to finally put their cash pile to better use (from a shareholder's perspective).  The company is going to start dishing out an $0.80/share/year dividend, which as a percentage of 2011's FCF is only 40%.  At current prices, the yield is going to be about 2.7%.

The company also was approved to buy back $30MM in stock.  Considering the company has $204MM in cash, and no debt, this really doesn't bother me one way or another.  While $30MM won't make a huge difference in the share count (the market cap is about $750MM), I think this amount is just enough to make an positive psychological impact that the company is buying back shares.

The fact that the company not only stabilized operating costs, but was able to reduce  SG&A costs by 0.5% (as a percent of revenue) was encouraging.  While the company never had a substantial gross margin problem (cotton prices don't seem to be as big of a factor when the jeans avg $260/pair), their transition into more retail stores was taking a toll on operating costs over the past several years.  Revenue growth was not trickling down to the bottom line.  It looks like this problem may have finally been resolved.  

I look forward to continued growth from a revenue and net income perspective.  Since the dividend payout is still 40%, and the company still has a mountain of cash to play with, I could see some substantial dividend hikes (or a one-time special dividend) occurring over the next several years.

AEO is trading at a 25 P/E, with a 2.2% dividend yield, with flat revenues for the past 5 years.  TRLG is trading at a 16.5 P/E, with a 2.7% dividend yield, and is averaging 16% revenue growth over the past 3 years.  I'm keeping my money with True Religion.

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