True Religion falls on weak earnings, downgrade

NEWY YORK - Shares of premium jeansmaker True Religion Apparel Inc. fell sharply on Wednesday, erasing two months of gains, after the company reported weak third-quarter earnings and an analyst downgraded the stock.

Late Tuesday, the company, which has performed well amid the recession despite offering $300 jeans, said third-quarter profit fell as expenses outpaced revenue, surprising investors by missing analyst expectations. Shares fell Tuesday in aftermarket trading.

Meanwhile, Lazard Capital Markets analyst Todd Slater said in a note to investors on Wednesday that retailers in general are moving toward a better selling environment than has been the case over the past year, and shares have jumped dramatically in recent weeks.

True Religion's shares, for instance, have risen 14 percent since the beginning of September, before falling $5.01, or 19 percent, to $21.55 during midday trading on Wednesday.

In order to move toward a more neutral stance to retailers in general, Slater downgraded True Religion and 7 other retailers — including Guess Inc. and American Eagle Outfitters Inc. — to "Hold" from "Buy."

The analyst said earnings recovery has so far been based on expense and cost-cutting, rather than higher sales, and shares have risen on that news. But now expectations will be stretched if there is no improvement in sales, he said in a note to investors.

"We recommend investors move to the sidelines, awaiting a more attractive entry point driven by either decreased valuations or increased 2010 visibility," Slater wrote.

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