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.

Looking to cook up a market-stomping stock portfolio? Check out our FREE report "7 Ingredients to Market Beating Stocks" and get started right now!

Related Articles
  1. Stock Analysis

    Net Neutrality: Pros and Cons

    The fight over net neutrality has become an amazing spectacle. But at its core, it's yet another skirmish in cable television's war to remain relevant.
  2. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  3. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  4. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  6. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  7. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  8. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  9. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
  10. Mutual Funds & ETFs

    ETF Analysis: Schwab US Broad Market

    Take an in-depth look at the Schwab U.S. Broad Market ETF, an incredibly low-cost fund based on a wide selection of the U.S. equity market.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  3. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  4. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  5. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
  6. BHD (Berhad)

    The suffix Bhd. is an abbreviation of a Malay word "berhad," ...
RELATED FAQS
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  4. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  5. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
  6. What happens to the shares of stock purchased in a tender offer?

    The shares of stock purchased in a tender offer become the property of the purchaser. From that point forward, the purchaser, ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!