True Religion Files for Chapter 11 Bankruptcy Protection


As of Thursday, July 6, 2017

True Religion, once a high-flying premium denim brand so popular its blue jeans were constantly being knocked off by counterfeiters, filed for Chapter 11 bankruptcy protection on July 5 in U.S. Bankruptcy Court in Delaware.

The Los Angeles clothing company said it had $483 million in outstanding debt. In a restructuring support agreement with lenders, True Religion said it will reduce its debt by $350 million by converting loans into equity. The company expects to emerge from bankruptcy in 90 to 120 days and return to normal operations.

Meanwhile, the company will continue to operate without interruption with the help of a loan from Citizens Bank N.A. for up to $60 million.

“By dramatically improving our capital structure 24 months in advance of our term-loan maturity, we will continue business operations as usual and provide our employees and business partners the long-term stability they need,” said John Ermatinger, president and chief executive of True Religion, in a statement. True Religion has 621 full-time employees and 1,084 part-time employees.

True Religion is just one of the latest apparel and retail ventures struggling to make it in a world where shoppers are perusing the Internet for clothing rather than hitting the shopping malls.

For years, much of True Religion’s expansion came from its own stores. At the time of its bankruptcy filing, True Religion had 128 U.S. stores—73 are full-price stores, 53 are outlet locations and two are Last Stitch stores. Another 11 stores are outside the United States. Its collections are also sold at nearly 500 locations in the United States, Mexico and South America, including Nordstrom, Bloomingdale’s, Saks Fifth Avenue and e-commerce sites.

For its fiscal year ending Jan. 28, 2017, the company’s direct-to-consumer sales netted $273 million, or nearly 74 percent of revenues. Its wholesale business in the Americas brought in $54 million, or nearly 15 percent of revenue. For that year, the company lost $78.5 million on $369.5 million in revenues.

In court documents, True Religion said things were going fine until 2013, the year revenues hit $490 million. The company began experiencing declining sales caused by the general trend of consumers veering away from traditional retail to online shopping.

“The volume of retailers either going out of business, over-inventoried or closing a significant number of physical locations has created a highly competitive promotional environment,” causing the denim company to resort to big sales to drive traffic, bankruptcy filings said.

Also, denim entered a down cycle in 2013, the company said, caused in part by the growth of the "athleisure" trend.

Competition also increased from emerging and established fast-fashion and low-priced apparel retailers, which put pressure on blue jeans prices. When the company was at its peak several years ago, its blue jeans were selling for $150 to $250.

Also, the company said it tried to launch new product designs that didn’t resonate with shoppers.

In 2015, the company hired several new executives. True Religion brought in John Ermatinger to take over as CEO and president. The company also hired a new chief marketing officer and a new vice president of sourcing, who shifted more production from the United States to offshore locations.

A big push was made to reduce costs by cutting back on travel expenses, sample spending and other measures. But in 2016, True Religion saw another reduction in customer traffic and business, which prompted it to close 20 unprofitable True Religion stores. The company has reduced by 25 percent the number of employees who work at the company's corporate headquarters and has worked to streamline and reduce the time between design and product arriving on store shelves.

True Religion was co-founded in 2002 by Jeff Lubell, who aggressively grew the company. In 2013, he sold True Religion to TowerBrook Capital Partners for $835 million. TowerBrook has made investments in companies such as Jimmy Choo, Odlo, BevMo! and Phase Eight.