UPDATE 5-Jeans maker True Religion explores sale

* Receives interest from potential buyers

* Shares jump 25 percent

* Proposals from private equity firms and rivals

* Brand seen fading as premium denim sector struggles

* Warnaco, VF Corp, PVH Corp likely bidders - source

(Adds comments from sources, details)

By Juhi Arora and Siddharth Cavale

Oct 10 (Reuters) - Premium jeans maker True Religion ApparelInc , hit by falling sales after a series of fashionmissteps, said it may sell itself after attracting interest frompotential buyers.

Shares of the company jumped as much as 25 percent to $26.25on Wednesday, valuing it at about $680 million. The stock hadfallen by about a quarter in the last three months.

The company, known for colorful jeans that sell for up to$360 at its specialty boutiques, has been struggling with weakerdemand as consumers switch to lower-priced denim. Sales havefallen 12 percent over the last three quarters.

"True Religion has all of the hallmarks of a fad. It enjoyedits heyday, over-expanded, and lost its core customer," saidanalyst Edward Yruma of KeyBanc Capital Markets.

"The company has undergone a number of fashion missteps.More importantly, we question the relevancy of the brand,particularly given its premium price point."

With plain denim back in fashion, True Religion has beendiscounting and attempting to move away from the embellishedlook it is known for. It expects to introduce new products intime for Christmas.

"There are some easy fixes needed in the business at thispoint in time," a source familiar with the matter said, addingthat a strategic player would be best for the company.

"The interest and the valuation seen from potential partiesis at a very robust level."

Another source with knowledge of the matter said interestedparties include Warnaco Group Inc , Wrangler-owner VFCorp and Calvin Klein maker PVH Corp as well asprivate equity firm Sycamore Partners. Warnaco and SycamorePartners declined to comment. VF and PVH could not be reachedfor comment.

True Religion's other competitors include Jones Group Inc

and Guess Inc .

True Religion could be worth $26-$37 per share if it wentprivate, said Diana Katz, an analyst with Lazard CapitalMarkets. At the top end of that range, the company would bevalued at $955 million.

However, with the premium denim industry struggling it ismore likely to receive a bid at the lower end of the range, Katzsaid in a note to clients.


Weak demand for True Religion's women's range in particular,including jeans and shirts with bold Mexican patterns, printsand colored stitching, forced the company to cut its full-yearprofit outlook in July.

KeyBanc's Yruma said he expected operating margins for 2012to fall to 16.9 percent, just over half their peak of 30.5percent in 2005.

Guess has also resorted to discounting to clear excessinventory as shoppers look for good bargains.

True Religion said it had formed a special committeecomprising non-management directors and had hired GuggenheimSecurities LLC as financial adviser and Greenberg Traurig LLP aslegal counsel to assist in the review.

The Wall Street Journal reported that the company hadfielded buyout proposals from private equity firms and apparelindustry companies. ()

True Religion, founded in 2002 by CEO Jeffrey Lubell, madeits mark with jeans that featured colorful reinforced stitchingand oversized low flap pockets.

Sales soared over the decade as celebrities such as AngelinaJolie, Jessica Simpson, Megan Fox and Jennifer Lopez were seenwearing the jeans.

True Religion owns and operates 116 stores in the UnitedStates as well as 23 shops elsewhere.

(Additional reporting by Olivia Oran in New York; Editing bySaumyadeb Chakrabarty and Rodney Joyce)

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