Analysts reacted to True Religion Apparel Inc.'s (NASDAQ TRLG) third-quarter report on Wednesday with a spate of downgrades, and predicted that 2007 will be a transition year for the company.
Shares were down $5.15, or 24.2 percent, to $16.11 in pre-market trading on the INET, having closed Tuesday at $21.26 on the Nasdaq, where the stock has ranged between $11.75 and $24.36 over the past year.
On Tuesday after the closing bell, the Los Angeles-based company known for its line of pricey jeans, reported both third-quarter results and 2006 guidance that missed Wall Street expectations.
Friedman, Billings, Ramsey & Co. analyst Karen Short said fiscal 2007 will be a transition year for the company, and downgraded the stock to "Market Perform" from "Outperform." Short also cut her price target by $10 to $16, predicting that fiscal 2007 earnings per share will be hurt by higher operating expenses.
"As the company continues to grow and become a global lifestyle brand, the increase in infrastructure is necessary; however, we do not believe the top line will increase at the same pace -- pressuring earnings," Short wrote in a client note.
CIBC analyst Dorothy S. Lakner downgraded the shares to "Sector Performer" from "Sector Outperformer," calling the third quarter a "big miss" as international sales, mainly in Japan, were sluggish.
Lakner forecasted less growth in 2007 and removed her price target.
"We still have faith that True Religion can be a global lifestyle brand, but it will take longer to play out than we thought, with growth pushed out about a year," Lakner said.
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