Business snapshot
True Religion Apparel, Inc. (NASDAQ:TRLG) is the owner of True Religion Brand Jeans, offering premium fashion apparel to consumers around the world. The company operates in four main business segments: U.S. Consumer Direct, U.S. Wholesale, International, and Core Services. The majority of its sales, $281.6 million, or 60% of the total 2012 revenue, were generated from the U.S. Consumer Direct. The U.S. Wholesale ranked second with $99.2 million in sales, while the International segment contributed $83.8 million in 2012 revenue. The U.S. Consumer Direct and U.S. Wholesale segments were also the two biggest income contributors, with $93.7 million and $44.3 million in profits, respectively.
Since 2008, True Religion Apparel, Inc. (NASDAQ:TRLG) has managed to consistently increase its top line. Revenue increased from $270 million in 2008 to $467 million in 2012, while net income stayed nearly flat, from $44 million to $46 million during the same period. In 2012, it generated $64 million in operating cash flow and $42 million in free cash flow. At $32 per share, True Religion is valued at nearly 7.23 times EV/EBITDA.
A fair price or not?
TowerBrook seems to get True Religion Apparel, Inc. (NASDAQ:TRLG) at quite a good price, as the valuation is the lowest compared to True Religion’s bigger peers, including Columbia Sportswear Company (NASDAQ:COLM) and VF Corp (NYSE:VFC), Columbia Sportswear is trading at $60 per share, with a total market cap of nearly $2.1 billion. The market values Columbia Sportswear at a higher valuation, 9.4 times EV/EBITDA. Columbia Sportswear Company (NASDAQ:COLM) has history dated back to 1938, providing high quality apparel and accessories for outdoor activities. In the first quarter of 2013, Columbia Sportswear Company (NASDAQ:COLM) has beaten analysts’ expectations in both revenue and net income. Its revenue increased by more than 4.5% to more than $348 million, while EPS came in at $0.29 per share, much better than the EPS of $0.11 in the same period last year.
Looking forward, Columbia Sportswear expected the slight decrease in net sales, with the operating margin staying around 6.6%, including the impact of restructuring charges and pre-operating costs of the China joint venture. What I like about Columbia Sportswear is its consistently increasing dividend payment. Since 2008, its dividend has been raised from $0.64 per share to $0.88 per share. At the current trading price, the dividend yield stays at 1.5%.
VF paid a higher valuation for Timberland
VF Corp (NYSE:VFC) is the biggest company among the three. It is trading at $185 per share, with a total market cap of $20.2 billion. It also has the highest EV multiple at 12.25 EV/EBITDA. VF Corporation has been growing itself from smart acquisitions under the leadership of Chairman and CEO, Eric Wiseman. For example, dated back to the middle of 2011, VF Corp (NYSE:VFC) agreed to acquire Timberland for around $2 billion to expand its outdoor clothing offerings for consumers. The company was quite confident to improving Timberland’s business performance, primarily via synergy and cost cutting, so that Timberland’s operating margin could reach 15%, equivalent to the rest of the other brands in VF.
In the first quarter 2013, Timberland brand revenue has grown with the company’s expectation, at the rate of 2%, including the mid-teen growth in Asia and mid single-digit growth in the Americas region. Its Outdoor & Action Sports, including Timberland, Vans, and North Face, experienced a 12% rise in operating income, with the operating margin of 16.4%. VF’s EPS came in at $2.41 per share, 26% higher than the EPS of $1.91 per share for the same period last year.
My Foolish take
Interestingly, the price that VF paid for Timberland placed the value of 9.3 times EV/EBITDA for Timberland, a valuation comparable to the one current for Columbia Sportswear, and much higher than True Religion Apparel, Inc. (NASDAQ:TRLG)’s deal. I personally think that, with the double-digit return on invested capital at 14.55%, True Religion would deserve a higher offering price.
The article Is True Religion Getting A Fair Price? originally appeared on Fool.com and is written by Anh Hoang.
Anh HOANG has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Anh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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