Denim company true religion considers going private.

When Jeffrey Lubell, True Religion Apparel Inc.'s chief executive, presided over Nasdaq's opening bell last Thursday, it may have signaled both the start of the trading day and the eventual end of his company's joyride on the stock exchange.

During an earnings conference call a day before, Charles Lesser, the Los Angeles-based denim company's chief financial officer, indicated True Religion could go private through an investment finn buyout. Local competitors Seven for All Mankind LLC and Citizens of Humanity have done deals with private equity firms within the last two years.

"We think it might be a great idea if the right company came along and took the company private, allowed us to grow our stores for a few years, and then took it public again," said Lesser.

Jeff Mintz, an analyst with Wedbush Morgan Securities Inc., was surprised at how forthcoming True Religion was about a possible acquisition. "You usually don't expect that public acknowledgement until the company gets out there, and maybe they have been out there."

The disclosure was prompted by an analyst's question about the valuation of the company's stock. The company's shares have dipped to close just above $19 on May 3 from a high of above $24 in late February. Pressure has mounted in recent weeks after Market-Watch columnist Herb Greenberg accused True Religion of "channel stuffing" or piling up orders to its Japanese distributor Jameric, a claim the company adamantly denies.

However, Mintz speculates one reason to turn private could be that Lubell prefers to stick with the creative aspect of designing jeans rather than delving into the financial particulars that come with heading a publicly traded company. That also could explain why True Religion recently brought on Michael Buckley, the former president and chief executive of the North American arm of apparel and footwear company Ben Sherman Group Ltd., as president.

True Religion might have more trouble attracting buyers for its company than it has had luring women to shell out for its pricey jeans. Mintz said a price of one to two times revenues could be reasonable, but he estimated that True Religion is now trading at a lofty two-and-a-half to three times its revenues.

"That seems high for a potential buyout," he said. "Whether they will find someone to pay a price that will be acceptable to them, I am not certain."

Although the terms of the private equity deals weren't disclosed, industry sources approximate that Bear Stearns Merchant Banking bought a stake in Seven for 1.4 times sales, while Berkshire Partners LLC paid Citizens around three times sales for majority ownership. Since those deals, rumblings that the premium denim market is going to implode have become even louder.

True Religion does have another option. It could aim for a strategic buyer to take it over. Large apparel companies such as New York giants Liz Claiborne Inc. and Warnaco Group Inc. have been on the prowl for brands to diversify their portfolios. These companies would only be interested in True Religion if they believe it covers an area their holdings fail to address and that it has offerings that can be extended to spark growth.

"If you are an acquiring company to branch out, everything depends on what you think you can do with the brand and your ability to make it a large property," Mintz said.

True Religion went public in a reverse merger and was traded on the Over-The-Counter Bulletin Board before jumping to the Nasdaq in August of last year, where its shares started trading at around $15. For the first quarter this year, the company reported that net sales climbed 77 percent to $35.6 million and net income increased 69 percent to $6.5 million.

Perhaps to be an appealing acquisition target, True Religion has been varying its product mix. It's hawking fleece, cashmere and suede products, in addition to its core denim, with the goal of becoming a lifestyle company that will stick around should the premium denim craze subside. The company estimates denim jeans constituted about 78 percent of its sales for the first quarter.

"It is the best evidence that we are transforming quickly from a denim brand to a casual brand without limitations," Lubell said during the conference call.

RACHEL BROWN

Staff Reporter