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SECTOR: Consumers COMPANY: True Religion

Sr. Analysts: Anna Braet Jr. Analysts: Amanda Cannizzio , Bridget Eastes , Moly Fang, Jonathan Garnick ,, Imran Hossein , Jenny Kwong , Leslie Mullings , Pradeep Mahtani , Andrew Walters. SECTOR: Consumers COMPANY: True Religion. Investment Recommendation. Key investment drivers

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SECTOR: Consumers COMPANY: True Religion

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  1. Sr. Analysts: Anna Braet Jr. Analysts: Amanda Cannizzio, Bridget Eastes, Moly Fang, Jonathan Garnick,, ImranHossein, Jenny Kwong, Leslie Mullings, PradeepMahtani, Andrew Walters SECTOR: ConsumersCOMPANY: True Religion

  2. Investment Recommendation Key investment drivers • 1. International Expansion • 2. Movement to Consumer-Direct-based Business Model • 3. Attractive Comparables

  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

  4. True Religion Company Snapshot

  5. TRLG Value Chain Raw Materials Direct from TRLG to Customers DESIGN Branded Retailers Department Stores & Boutiques Outsource Production to U.S. (denim), Mexico, Asia In-House Distribution Showrooms (CA and NY) Accessory Manufacturers Licensing

  6. International Expansion • Headquarters: Switzerland, Japan, South Korea, Hong Kong, Germany • Joint Venture with German Distributor UNIFA Premium • Reduce Distribution costs BU Finance & Investment Club Source: Company Filings

  7. 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 BU Finance & Investment Club Source: Company Filings

  8. Movement to Consumer Direct • Motivations: • Department stores • Profit margins • Premium Brand • Maintain >30% gross margin BU Finance & Investment Club

  9. Movement to Consumer Direct • Benefits: • Display space • More control • Avoid wholesale pricing • Maintain >30% gross margin BU Finance & Investment Club

  10. Attractive Comparables • No debt – no plans to assume debt • Cash financing of expansion BU Finance & Investment Club

  11. Valuation 50% Weight 50% Weight

  12. Risks & Sensitivities 25% 25% 25% 25% 100%

  13. Recommendation Key Investment Drivers: • 1. International Expansion • 2. Movement to Consumer-Direct-based Business Model • 3. Attractive Comparables

  14. Questions? BU Finance & Investment Club

  15. Back Up Slides 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 BU Finance & Investment Club

  17. 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 NYTimes.com, WSJ, www.tradingeconomics.com

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