Here is Why True Religion is STILL a Bad Stock to Own

Allow me to be brief since I know preparation into a tumultuous conclusion to the week is top of mind. Today, shares of True Religion (TRLG) will be crushed following a FY guide down and an ugly quarter. On February 9, I suggested avoiding/shorting True Religion shares for a multitude of reasons (www.decodingwallst.com), ranging from overvaluation to peers to a basic rule of thumb of not buying a stock on a very significant gap lower on the chart. I have stayed true to that opinion in assorted tweets (@BrianSozzi) since. The answer to the question I am landing today, “do I buy on weakness”, is simple…you are still not to go long True Religion, especially in this unrelenting trading environment for global multinational retailers that happen to warn on guidance. Here are a couple explanations on the reiterated call:
• True Religion's factory business has succumbed to the same promotional pressures that hurt Coach (COH). On premium brands, this is unwelcome. The market values a True Religion at 2x book value because of its premium denim position, which now looks to be under fire.
• There continues to be a good bit of True Religion product moving through the off-price retail channel and at prices that I think management unhappy about. In addition to the shift in profit margin this creates, it cheapens the perception of the brand.
• The real deal on women's product sales weakness is that the consumer balked at fashion newness, clamoring for True Religion's old school basics. A reluctance to accept newness is a sign that the brand could only be stretched so far, a negative for a company with strong international expansion aspirations.
• International operating margins were a significant disappointment (and well removed from management's long run plan) in the quarter, speaking to inefficiencies in the supply chain process that will not correct overnight given the slowdown in overseas spending.