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Cherokee's net income for Q1 decreases
10
Jun '09
Cherokee Inc, a leading global licensor and brand management company, reported its financial results for the first quarter ended May 2, 2009 (the “First Quarter”).

Partly as a result of the stronger U.S. dollar, which resulted in lower U.S. dollar based royalties from our international licensees, total royalty revenues for our First Quarter totaled $8.9 million, as compared to $11.5 million in the comparable period last year. Cherokee's operating expenses for the First Quarter totaled $3.1 million, as compared to $3.7 million in the comparable period last year, representing a reduction of expenses of $0.6 million, due to continued expense management policies.

Cherokee's net income for the First Quarter decreased by a total of $847,000 to $3.8 million or $0.43 per diluted share, as compared to $4.7 million, or $0.52 per diluted share in the year ago period. The year ago period included $0.5 million of audit royalties, or an estimated $0.03 per diluted share, which represented several years of past royalties due.

The Company estimates that our First Quarter diluted EPS would have totaled approximately $0.50 per share, or $0.07 higher, had exchange rates remained constant in the First Quarter as compared to the prior year. However, our First Quarter earnings also benefited by approximately $0.04 per diluted share from amended tax returns filed in the First Quarter. Normalizing for all of these adjustments to both periods, the Company estimates that First Quarter diluted EPS would have been $0.46 as compared to $0.49 per share last year.

Howard Siegel, President of Cherokee, stated, “Our domestic royalty revenues for the First Quarter decreased by $0.9 million from the prior year. This was primarily attributable to the reduction of Cherokee adult business at Target and the closure of Mervyn's. These declines were partially offset by our growth in the Cherokee children's business at Target and the Carole Little brand at TJX. We continue to discuss with Target expansion opportunities with the adult business for 2010.

Internationally, we experienced retail sales growth in local currencies ranging from 11% to 28% in Hungary, Poland, the Czech Republic and Slovakia with Tesco. However, in the U.K. retail sales in local currency declined by 12.7%, and as a result of the stronger dollar the exchange rate difference totaled -27.6%.

Although we expect that retail revenues may continue to be soft through the rest of this year, we believe we will benefit from our growing revenue streams from our Cherokee brand in Brazil, Chile, Peru and India, coupled with the continued growth of Norma Kamali at Wal Mart. In addition, we are excited about the upcoming launch of our Cherokee brand in Spain with Eroski, which is expected to occur in the second half of 2009, and believe this could grow to be a significant contributor to our future royalty revenues.”

Robert Margolis, Chairman and CEO, added, “We believe that our business model and debt-free balance sheet serve us well given the current challenges in the retail environment worldwide. Although we are not pleased with our First Quarter revenue results, we are pleased with our prudent expense management and are very certain that our sales teams are focused on some exciting growth opportunities we hope to announce over the next 6 months.”


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