True Religion Selloff: Too Much, Too Fast

True Religion Apparel Inc. (TRLG) is one of the few retailers that have consistently ratcheted up earnings expectations. Back in August, the jeans maker said it raised its expected earnings per share for the full year from a range of $1.52 to $1.56 to between $1.61 to $1.65 for the year on revenue of $242 million to $247 million – that is up from a previous range of $220 million to $225 million. The conference call spoke of continuing strong consumer trends, pick up in gross margin during the fourth quarter, decrease in SG&A and continuation of a plan to open at least 20 to 25 stores a year.

Now, granted there has been a rapid deterioration of the state of the consumer in the past month or so and that there could be downward revisions to those estimates in this type of retail environment, but even if that were the case, it’s largely reflected in a stock price that now is valued at just 9.5 times forward earnings after a 36% decline since a Sep. 25 intra-day high of $30.25. The selloff has been too much and too fast and the shorts (short interest stands at 12.76 million on a small 23.01 million share float) shouldn’t overstay their welcome for an inevitable rally from extremely oversold conditions.