From their humble origins as tough work wear for miners in the California gold fields, denim blue jeans have evolved into quintessential American cultural icons.
Durable, yet comfortable, jeans have managed to remain a staple article of clothing for succeeding generations since they first achieved mass market appeal as the uniform of nonconformity in the 1950s. With their deeply embedded association with youthfulness and rebellion, jeans have remained a consistently marketable item to the younger generation.
Rebellion Morphs Into Celebrity Sex Appeal
That youth culture blue flag of rebellion has morphed into a $300-a-pair celebrity designer item, and even at that price these jeans are flying off shelves. Injecting a little bit of celebrity sex appeal into the traditional youth and rebellion message seems to have worked marketing magic on a generation that elevates to stardom people like Paris Hilton.
Marketing Alchemy Turns Denim To Gold
For those companies that have managed to perform this fashion industry equivalent of an alchemist turning base metal into gold, the last couple years have been golden times indeed. Manufacturers and marketers of True Religion Apparel (Nasdaq:TRLG) and Guess? Inc (NYSE:GES) have seen both their profits and share prices soar. Back in mid-2004, True Religion was a $0.77 stock and the business did only $27 million in revenue that year. Recently, shares are around $20 and revenues are expected to hit $166 million this year. During the same period, Guess shares soared from $7 up to around $50, as revenues doubled and earnings quadrupled.
After such an impressive run, can investors expect more of the same in the future?
Product And Geographic Diversification Underway
While the successful repositioning of a staple into a luxury item has got them this far, both companies don't appear to be banking on the same sort of future growth coming from denim apparel alone. Consistent with their lifestyle marketing approaches, both companies have been busy rolling out a whole range of other products including, shoes, handbags, accessories, fragrances and other cosmetics. Selling this expanded line of products through their own branded retail outlets is also part of a strategy that aims to improve overall profitability.
Reaching as yet untapped global markets is also part of this future growth strategy. Recently Guess opened its first store in China and it plans to have 28 stores there by the end of the year. True Religion, with only eight standalone stores currently, has ambitious plans to open 14 new stores by yearend, 30 by the end of 2008 and 50 by the end of 2009. TRLG only recently entered the UK and Japan markets, and the odds are that we'll probably see more foreign exposure. (To keep reading about retail chains, see Analyzing Retail Stocks.)
Analysts Still Bullish
With this prospect of broadening growth and earnings momentum, some sell-side analysts appear to remain bullish. While the positive sentiment for Guess, which recently reported consensus-beating earnings on double-digit revenue growth, appears justified, a succession of quarterly earnings misses at True Religion appear to make such optimism look like an act of faith.
Until True Religion can show solid evidence that consumers are accepting its new product categories, investors will likely remain mindful of the fact the company has a high dependency on its denim lines; which sell at much higher price points than similar products marketed by competitors Guess and Diesel.
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