Cherokee Total royalties decline 11.4%

04 Sep '08

3 min read

Cherokee Inc reported financial results for its second quarter ended August 2, 2008 ("Second Quarter"). Net revenues for the three months ended August 2, 2008 totaled $10.5 million, compared to revenues of $11.9 million in the comparable period last year.

Net earnings for the three months ended August 2, 2008 totaled $4.0 million, or $0.45 per diluted share, compared to $4.9 million, or $0.55 per diluted share, in the year ago period. The Company ended the quarter with cash and equivalents of $15.9 million, net receivables of $9.8 million and no debt.

Selling, general and administrative expenses for the Second Quarter were $3.9 million, which is less than the $4.2 million in the comparable period last year, primarily due to:

(i) lower accrued bonus expense;

(ii) lower stock compensation expense; and

(iii) lower marketing expenses. These lower expenses were somewhat counter-balanced by certain increases in various other expense categories. Interest and other income for the Second Quarter totaled $28,000 versus the $250,000 reported last year, with the decrease attributable to lower average cash balances and lower interest rates.

Howard Siegel, President of Cherokee, stated, "Our retail sales and resulting royalties from our licensees in the U.S. and Canada were down in the Second Quarter, reflecting the continued retail weakness in these areas. During our Second Quarter, royalties from our U.S. licensee, Target Stores, declined by 21.3%, while Tesco (U.K. and Central Europe) overall declined by 3.3%, reflecting retail weakness in the U.K., which was offset by growth in Tesco's Central European regions.

In addition, during Fiscal 2009 several of our new licensees began selling Cherokee products, including Shufersal in Israel, Falabella's Tottus stores in Peru (Chile began late last year), and Grupo Pao de Acucar in Brazil. With 58% of our overall revenues attributable to international licensees, our 'World Branding' strategy for Cherokee is taking hold, and is providing geographic diversification to our royalty stream. We continue to pursue global opportunities for brands we own and represent."

Robert Margolis, Chairman and CEO, said, "We are disappointed with our Second Quarter revenue decline, and are focused on keeping our costs down in this difficult retail environment. Fortunately, our low cost business model and unlevered balance sheet, combined with our global diversification and new revenue streams, provides us with stability to continue to pursue strategies which we believe will benefit our shareholders in the long-term."

Russell J. Riopelle, Chief Financial Officer, added, "We once again finished the quarter in a strong cash position and with no debt. In addition to the past dividends we've paid to shareholders, we previously announced and will pay a dividend of $0.50 per share on September 16th, evidencing continued execution of our goal of returning profits to shareholders."

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