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 Apparel Inc , hit by falling sales after a series of fashion missteps, said it may sell itself after attracting interest from potential buyers.

Shares of the company jumped as much as 25 percent to $26.25 on Wednesday, valuing it at about $680 million. The stock had fallen 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 weaker demand as consumers switch to lower-priced denim. Sales have fallen 12 percent over the last three quarters.

"True Religion has all of the hallmarks of a fad. It enjoyed its heyday, over-expanded, and lost its core customer," said analyst 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 been discounting and attempting to move away from the embellished look it is known for. It expects to introduce new products in time for Christmas.

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

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

Another source with knowledge of the matter said interested parties include Warnaco Group Inc , Wrangler-owner VF Corp and Calvin Klein maker PVH Corp as well as private equity firm Sycamore Partners. Warnaco and Sycamore Partners declined to comment. VF and PVH could not be reached for comment.

True Religion's other competitors include Jones Group Inc

and Guess Inc .

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

However, with the premium denim industry struggling it is more likely to receive a bid at the lower end of the range, Katz said in a note to clients.


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

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

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

True Religion said it had formed a special committee comprising non-management directors and had hired Guggenheim Securities LLC as financial adviser and Greenberg Traurig LLP as legal counsel to assist in the review.

The Wall Street Journal reported that the company had fielded buyout proposals from private equity firms and apparel industry companies. ()

True Religion, founded in 2002 by CEO Jeffrey Lubell, made its mark with jeans that featured colorful reinforced stitching and oversized low flap pockets.

Sales soared over the decade as celebrities such as Angelina Jolie, Jessica Simpson, Megan Fox and Jennifer Lopez were seen wearing the jeans.

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

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

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