Case 12: True Religion Jeans: Flash in the Pants or Enduring Brand?

Founded in 2002 by Jeff Lubell, True Religion had become one of the largest premium denim brands in the United States by 2012. Although True Religion made its debut in upscale department stores and trendy boutiques a decade earlier, the company owned 86 full price retail stores and 36 outlet stores in the United States as well as 30 stores in international markets by the end of 2012. The companys domestic retail store business accounted for about 60% of revenues and 64% of operating profit before unallocated corporate expenses in 2012. Just five years earlier, the U.S. retail store segment generated only 17% of sales and 25% of operating profit before unallocated corporate expenses.

Jeff Lubells vision of the company had come trueat least partly. The company had transformed itself from a jeans designer into an apparel retailer with it own brand la Buckle and Diesel. At the same time, True Religion had managed to shift its product mix so that sportswear accounted for almost 35% of sales in its company-owned stores. Lubell felt these two ingredients were critical to establishing True Religion as a lifestyle brand. The ultimate in product differentiation, many companies attempt to create so-called lifestyle brands that transcend product category and inspire deep consumer loyalty. Lubell felt becoming a lifestyle brand was the key to insulating True Religion from the inevitable fluctuations in fashion trends.

Moreover, True Religions sales had grown at an average annual rate of almost 22% from 2007-2012. The companys return on invested capital was an impressive 27% and its return on average assets was 12% in 2012. Despite these factors, press articles and analyst reports on True Religion described the company as, the struggling maker of premium denim.1 A New York Post article entitled Escape From Hell for True Religion described private equity firm, TowerBrook, as the companys savior,2 when the company announced it had been acquired by TowerBrook in 2013. Other denim brands, such as Jeff Rudes J Brand, appeared to be usurping True Religions position as the must have denim brand for young consumers.

What had gone wrong at True Religion? Was the change in ownership the answer to the companys problems? Was premium denim destined to go the way of Flash Dance legwarmers and Crocs as fast fashion from the likes of H&M became more mainstream? Private equity investors had snapped up stakes in both established and up-and-coming premium denim brands in the past five yearsleaving just one publicly traded premium jeans maker, Joes Jeans. Should investors stay away from the industry?