As corporate earnings season winds down for the week, True Religion Apparel, Inc. (TRLG - 27.85) posted its fourth-quarter report after the close last night. TRLG said its quarterly profit decreased 8.4% to $14.5 million, or 57 cents per share, from last year's profit of $15.8 million, or 63 cents per share. Excluding items, per-share profit dropped to 62 cents from 64 cents. Thanks to an 11.1% increase in same-store sales, however, revenue rose 7.7% to $119.4 million. The California-based clothier's results couldn't meet expectations, as Wall Street was calling for a profit of 71 cents per share on $128 million in revenue. For fiscal 2012, TRLG is looking for earnings of $1.88 to $1.95 per share on $450 million to $460 million in sales, well below analysts' forecast for per-share earnings of $2.37 on $494.3 million in sales.
TRLG has plunged more than 23% early in the session, as traders are reacting harshly to the poor showing and equally poor guidance. This drop has erased the shares' year-to-date gain of 6.2%, knocking them down from a recent perch in all-time high territory. At last check, the stock is shuffling below the $28 level, which served as resistance from mid-May 2010 through early May 2011. TRLG is positioned to close the week at its lowest point in several months.
Ahead of earnings, the options crowd was upbeat toward TRLG. During the past two weeks, speculators on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 1.07 calls for every put. This ratio arrives in the 67th percentile of its annual range, signaling that traders on these exchanges have purchased bullish bets over bearish at a much faster clip than usual over the past couple of weeks.
However, this recent inclination toward calls may not be as bullish as it would initially appear. Short interest on the equity is up 8.3% during the most recent reporting period. These pessimistic positions now account for a healthy 6.8% of the security's available float. Consequently, it's possible that a portion of the recent call volume was a result of hedging activity by the shorts.
Elsewhere on the Street, there could be an unwinding of sentiment by bullish brokerages. According to Zacks, 67% of analysts maintain a "buy" or better rating for TRLG. Plus, Thomson Reuters places the consensus 12-month price target at $38, which represents a hefty 37.8% premium to today's session low of $27.57.
In fact, TRLG has already been slapped with some downbeat analyst attention this morning. Citigroup, Benchmark Company, and Brean Murray Carret lowered their ratings to "neutral" from "buy," while both Citigroup and Benchmark cut their price targets by $5 to $37 and $38, respectively. Meanwhile, Caris & Company dropped its rating to "above average" from "buy."
Should TRLG continue to flag on the charts, additional downgrades and/or price-target cuts, or a capitulation from options bulls, could make matters worse for the jeans designer.
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