True Religion Exits Bankruptcy With Smaller Footprint

True Religion, the Los Angeles company whose jeans were constantly being knocked off by Chinese counterfeiters when the label was a must-have brand, exited Chapter 11 bankruptcy with a smaller retail footprint and cash to move forward.

The exit was announced on Oct. 27. The company said it shed about $357 million in debt by converting loans into equity. It reduced its term loans from $471 million to $113.5 million and extended its debt maturities to 2022. That means the L.A. company’s debt service will decline every year, clearing the way for growth.

When it filed for bankruptcy on July 5 in U.S. Bankruptcy Court in Delaware, some of True Religion’s major creditors were LYA Group, a Los Angeles blue jeans manufacturer, which was owed $826,520; OA S.A., a Salvadoran knit wear maker, which was owed $766,762; North American Trading, which was owed $277,035; and U.S. Customs and Border Protection, which was owed $90,000.

True Religion was also $192,000 behind on rent for its new 72,000-square-foot office headquarters in Manhattan Beach, Calif., which is leased from Continental Rosecrans Aviation, a large commercial real estate developer in the South Bay region of Los Angeles.

Citizens Bank, which provided a $60 million loan for the company to keep operating while it reorganized, is also providing an exit loan of $60 million, ensuring that the company continues to have ample cash to execute its growth plan.

“We would like to thank our consumers, our employees, vendors and suppliers for their unwavering support and continued dedication to the True Religion brand,” says John Ermatinger, True Religion’s chief executive officer. “With substantial debt burden removed, we are eager to turn our full attention to implementing our forward-thinking strategy, including improving our retail operations, new partnerships and growing the brand’s digital presence.”

At the time it filed for Chapter 11 bankruptcy protection, True Religion said it wanted to close at least 27 of its approximately 140 stores. One of its creditors was Malibu Village, a shopping center in Malibu, Calif., owed nearly $107,000 at the time of the bankruptcy filing. Other malls owed between $54,000 and $58,000 included Fashion Show Mall in Minneapolis and Park Meadows Mall in Chicago.

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.

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.

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.

In 2015, the company hired several new executives. True Religion brought in Ermatinger to take over as CEO and president. The company also brought on 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 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.