Quarterly revenue of $6.7 million ; Q3 retail sales of $401 million , up 5.4% year-over-year Nine-month revenues increased approximately 8.2% year-over-year Announced 1 Million Share Stock Repurchase Program Finalized Liz Lange License Agreement in India with Mahindra Retail’s Mom & Me Stores Announces new Cherokee brand license agreement in Thailand , Singapore, Malaysia , Vietnam and Myanmar with Apostrophy Inc. , a subsidiary of Connectin Asia SHERMAN OAKS, Calif. --(BUSINESS WIRE)-- Cherokee Inc. (NASDAQ: CHKE), a global marketer of style-focused lifestyle brands, today reported financial results for the third quarter ended November 2, 2013 . Net revenues for the third quarter were $6.7 million , consistent with the prior-year period. Revenues associated with Liz Lange and the Cherokee School Uniform brands offset a significant decrease of approximately $525,000 in Cherokee royalty revenues at Zellers Canada. Retail sales of Cherokee branded merchandise at Target U.S., excluding Cherokee School Uniforms, increased despite the tougher retail environment; however, royalty revenue from Target, as expected, declined $400,000 due to the deescalating royalty rate reached earlier this fiscal year as compared to Fiscal 2013. Additionally during the third quarter, the devaluation of several foreign currencies negatively impacted revenue by approximately $122,000 . Despite these currency devaluations, Cherokee’s international business continued to see growth during the quarter. Retail sales at Tesco increased 187% on a year-over-year basis. Selling, general and administrative expenses for the third quarter were $4.1 million , or 61% of net revenues, compared with $3.4 million , or 51% of net revenues, in the prior-year period. This increase is related to personnel and development costs required to further maximize the 360-degree licensing model. During the quarter, the Company added to its infrastructure in anticipation of further growth in Fiscal 2015 including the launch of Cherokee-branded adult products on Target dotcom and the expansion of the Company’s brand portfolio into new territories. Net income for the third quarter was $1.6 million , or $0.19 per diluted share, compared with $2.1 million , or $0.25 per diluted share, in the prior-year period. “The Cherokee Group has seen solid progress year-to-date,” said Cherokee Chief Executive Officer Henry Stupp . “Despite a tough domestic retail environment, continued challenges facing the European economy and the closing of Zellers Canada, revenues for first nine months of Fiscal 2014 increased roughly 8.2% year-over-year. Clearly, the positive impact attributable to the refinement of our operating model combined with the acquisitions of the Liz Lange and Cherokee School Uniform businesses have strengthened the Company and positioned us for future growth and development. “We are particularly excited about our recent expansion of Liz Lange Maternity in India with Mahindra’s Mom & Me Stores, and are happy to announce today a new brand license agreement for the Cherokee brand with specialty and freestanding stores in Thailand , Singapore, Malaysia , Vietnam and Myanmar with Apostrophy Inc. , a subsidiary of Connectin Asia . In addition, our current progress with our namesake Cherokee brand in South America has contributed to our overall success. “With just over a month and a half remaining in the fiscal year, we remain confident that our brand initiatives, marketing efforts, and increased support and collaboration with our key partners positions the Cherokee Group well for the future. Going forward, we will continue to evaluate ways to expand and enhance our current roster of brands as well as acquire additional brands to generate value for both our shareholders and retail partners,” Mr. Stupp concluded. At November 2, 2013 , the Company had cash and cash equivalents of $3.5 million , compared to $2.4 million at February 2, 2013 . Conference Call The Company will host a conference call today at 1:30 p.m. PT / 4:30 p.m. ET . To participate in the call, please dial (877) 407-0784 (U.S.) or (201) 689-8560 (International) ten minutes prior to the start time and use conference ID: 13573027. The earnings call will also be broadcast live over the Internet and can be accessed on the Investor Relations section of the Company’s Web site at http://www.cherokeegroup.com . A slide presentation will accompany the prepared remarks and has been posted along with the webcast link on Cherokee’s website. For those unable to participate during the live broadcast, a replay will be through Thursday, December 19, 2013 , at 8:59 p.m. PT / 11:59 p.m. ET . To access the replay, dial (877) 870-5176 (U.S.) or (858) 384-5517 (International) and use conference ID: 13573027. About Cherokee Inc. Cherokee Inc. is a global marketer and manager of a portfolio of Fashion and Lifestyle brands including Cherokee ® , Carole Little ® , Liz Lange ® and Sideout ® , in multiple consumer product categories and sectors around the world. The Company has license agreements with premier retailers and manufacturers covering over 40 countries around the world including Target Stores (U.S. and Canada), Tesco ( U.K. , Ireland and certain Central European countries), RT-Mart ( Peoples Republic of China ), Pick ‘n Pay (South Africa ), Falabella (Chile, Peru and Colombia), Arvind Mills (India and certain Middle Eastern countries), Shufersal LTD. ( Israel ), Comercial Mexicana ( Mexico ), Eroski (Spain), Nishimatsuya ( Japan ), Magnit ( Russia ), Landmark Group’s Max Stores (certain Middle East and North Africa countries), and the TJX Companies (U.S., Canada and Europe). Statements included within this news release may contain forward-looking statements for purposes of the safe harbor provided by the Private Securities Litigation Reform Act of 1995. When used, the words “anticipates,” “believes,” “expects,”“may,” “should,” and similar expressions are intended to identify such forward-looking statements. Forward-looking statements included in this press release (including, without limitation, express or implied statements regarding potential future business development) involve known and unknown risk and uncertainties that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such risks and uncertainties, include, but are not limited to, the effect of global economic conditions, the financial condition of the apparel and retail industry, adverse changes in licensee or consumer acceptance of products bearing the Company’s brands, the ability and/or commitment of the Company’s licensees to design, manufacture and market Cherokee, Liz Lange, Completely Me, Sideout and Carole Little branded products, the Company’s dependence on Target for most of the Company’s revenues and the Company’s dependence on its key management personnel. The risks included here are not exhaustive. A further list and description of these risks, uncertainties and other matters can be found in the Company’s Annual Report on Form 10-K/A for Fiscal Year 2013, and in its periodic reports on Forms 10-Q and 8- K. Given these risks and uncertainties, you should not place undue reliance on forward-looking statements as a prediction of actual results. The Company disclaims any intent or obligation to update any of the forward-looking statements contained herein to reflect future events and developments. CHEROKEE INC. CONSOLIDATED BALANCE SHEETS Unaudited (amounts in thousands, except share and per share amounts) November 2 , February 2 , 2013 2013 Assets Current assets: Cash and cash equivalents $ 3,462 $ 2,424 Receivables 6,131 5,147 Income taxes receivable — 779 Prepaid expenses and other current assets 365 426 Deferred tax asset 48 48 Total current assets 10,006 8,824 Trademarks, net 21,930 22,131 Deferred tax asset 2,222 1,693 Property and equipment, net 1,201 945 Other assets 52 59 Total assets $ 35,411 $ 33,652 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable and other accrueds $ 1,428 $ 1,125 Short term debt 3,527 3,291 Income taxes payable 245 — Accrued dividends 840 840 Deferred revenue 74 80 Accrued compensation payable 244 63 Total current liabilities 6,358 5,399 Long term liabilities: Long term debt 10,583 13,228 Income taxes payable 1,404 1,316 Other non-current 113 183 Total liabilities 18,458 20,126 Commitments and Contingencies Stockholders’ Equity Preferred stock, $.02 par value, 1,000,000 shares authorized, none issued and outstanding — — Common stock, $.02 par value, 20,000,000 shares authorized, 8,403,500 issued and outstanding at November 2, 2013 and 8,400,168 issued and outstanding at February 2, 2013 167 167 Additional paid-in capital 21,073 20,249 Retained earnings (deficit) (4,287 ) (6,890 ) Total stockholders’ equity 16,953 13,526 Total liabilities and stockholders’ equity $ 35,411 $ 33,652 CHEROKEE INC. CONSOLIDATED STATEMENTS OF INCOME Unaudited (amounts in thousands, except per share amounts) Three Months ended Nine Months ended November 2 , October 27 , November 2 , October 27 , 2013 2012 2013 2012 Royalty revenues $ 6,684 $ 6,730 $ 22,232 $ 20,551 Selling, general and administrative expenses 4,062 3,404 13,673 11,203 Operating income 2,622 3,326 8,559 9,348 Other income (expense): Interest (expense) (116 ) (65 ) (371 ) (138 ) Interest income and other income (expense), net (2 ) 3 3 15 Total other income (expense), net (118 ) (62 ) (368 ) (123 ) Income before provision for income taxes 2,504 3,264 8,191 9,225 Income tax provision 941 1,187 3,068 3,469 Net income $ 1,563 $ 2,077 $ 5,123 $ 5,756 Basic earnings per share $ 0.19 $ 0. 25 $ 0.61 $ 0.69 Diluted earnings per share $ 0.19 $ 0.25 $ 0.61 $ 0.68 Weighted average shares outstanding: Basic 8,396 8,397 8,394 8,392 Diluted 8,408 8,436 8,406 8,405 Dividends declared per share $ 0.10 $ 0.10 $ 0.30 $ 0.50 CHEROKEE INC. GAAP TO NON-GAAP FINANCIAL METRICS Unaudited (amounts in thousands, except percentages and per share amounts) Three months ended Nine months ended November 2, 2013 October 27, 2012 November 2, 2013 October 27, 2012 GAAP Royalty revenues $ 6,684 $ 6,730 $ 22,232 $ 20,551 Selling, general and administrative expenses: GAAP Selling, general and administrative expenses 4,062 3,404 13,673 11,203 Professional fees* - - 853 - Non-GAAP selling, general and administrative expenses 4,062 3,404 12,820 11,203 Non-GAAP selling, general and administrative expenses as a percentage of revenue 61 % 51 % 58 % 55 % Operating income: GAAP Operating income 2,622 3,326 8,559 9,348 Professional fees* - - 853 - Non-GAAP Operating income 2,622 3,326 9,412 9,348 Non-GAAP Operating income as a percentage of revenue 39 % 49 % 42 % 45 % Net income: GAAP Net income 1,563 2,077 5,123 5,756 Professional fees* - - 853 - Tax affect - - (319 ) - Non-GAAP Net income $ 1,563 $ 2,077 $ 5,657 $ 5,756 Non-GAAP Diluted earnings per share $ 0.19 $ 0.25 $ 0.67 $ 0.68 Weighted average diluted shares outstanding: 8,408 8,436 8,406 8,405 EBITDA: GAAP EBITDA 2,613 3,775 9,528 10,553 Professional fees* - 853 Non-GAAP EBITDA $ 2,613 $ 3,775 $ 10,381 $ 10,553 Non-GAAP EBITDA as a percentage of revenue 39 % 56 % 47 % 51 % Effective Tax Rate: 37.6 % 36.4 % 37.5 % 37.6 % * $0 and $853 for the three and nine month periods ending November 2, 2013 , respectively of professional and consulting fees that we believe will not recur and are related to the identification and remediation of weaknesses identified in the Company’s 10-K/A for the Fiscal Year 2013. These fees included audit fees, legal fees and consulting fees to evaluate Cherokee’s control systems and procedures, perform SOX related testing and compliance work, and provide additional analysis around tax provision, expense oversight and reconciliation analysis. Cherokee Inc. Jason Boling , CFO 818-908-9868 or Addo Communications, Inc. Patricia Nir / Kimberly Esterkin 310-829-5400 Source: Cherokee Inc.
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