NEW YORK -- True Religion Apparel's stock soared on Wednesday as investors embraced the clothing company's announcement that it is considering putting itself up for sale.
THE SPARK: Earlier in the day, True Religion, which is known for its high-end jeans, said that it is looking at strategic options for its business. This includes a potential sale of the company. True Religion says it has received interest from some third parties and that its board has formed a special committee that will evaluate its alternatives.
THE BACKGROUND: True Religion has struggled of late, with industry experts saying that it was hurt in the second quarter by new, simpler merchandise that was priced higher than its rivals' offerings. The Vernon, Calif., company's quarterly revenue performance missed Wall Street's view and it cut its full-year earnings forecast and lowered the high end of its revenue guidance.
THE ANALYSIS: Dorothy Lakner of Caris & Co. said in a client note that there's been speculation in the past that True Religion might look to sell itself, but believes that this time it's for real. The analyst says a private equity firm might make the most sense to buy the company, as that would give True Religion the opportunity to grow its business, and add the management and infrastructure that's needed while being out of the public eye.
Lakner kept an "Above Average" rating and $32 price target on True Religion.
KeyBanc Capital Markets' Edward Yruma raised True Religion to "Hold" from "Underweight" and gave it an $18 price target on news of a potential sale. The analyst said that some of the issues facing the company are that it expanded too much and is dealing with very fickle customers in the high-end jeans market.
SHARE ACTION: Shares of True Religion Apparel Inc. climbed $4.39, or 20.9 percent, to $25.40 in afternoon trading. The stock has traded in a 52-week range of $20.22 to $37.82. The shares are down 41 percent for the year to date.