Cherokee Global Brands reports fall in Q3 revenues

Cherokee Global Brands’ third quarter revenues ended October 29, 2016 were 6.5 million dollars compared with 8.1 million dollars in the prior-year period. This decrease, the company said, is largely due to the expected decrease in North America revenues relating to the Cherokee Brand as the company continues to transition away from Target and to its new wholesale licensees. Some of the decrease was offset by revenue increases particularly in South America, India, the Middle East, South Africa and Asia.

“Fiscal 2017 has been a productive year for Cherokee Global Brands,” stated Henry Stupp, CEO in a statement, adding, “We have made considerable progress against our strategic plan on a number of fronts. We welcomed Hi-Tec and Magnum brands to our brand portfolio. We are also building our global points of distribution through new Tony Hawk license agreements with Walmart Chile, Walmart Argentina and Fashion UK for C&A in continental Europe, each of which provides for multi-category expansion of the Tony Hawk brand. We have entered into a LOI for Flip Flop Shops that will mark the brand’s entrance into Australia and New Zealand through at least 30 new franchise locations.”

Third quarter and nine month financial results

For the first nine months of fiscal 2017, revenues were 25.6 million dollars compared with 26.8 million dollars in the prior year period. Cherokee-brand royalties earned by Target during the nine-month period were 9.4 million dollars, a decrease of 3.1 million dollars over the same prior year period. With an annual minimum guarantee of 10.5 million dollars, the company expects to record the balance of 1.1 million dollars during the fourth quarter of fiscal 2017.

GAAP operating loss totaled 1.2 million dollars, compared with GAAP operating income of 2.5 million dollars in the prior-year period. GAAP operating income for the nine-month period totaled 5.6 million dollars or 22 percent of revenues, compared with 11.4 million dollars or 43 percent of revenues, in the prior year period. Non-GAAP operating income for the quarter was 1.2 million dollars or 19 percent of revenues, compared with 3.1 million dollars or 38 percent of revenues, in the prior year period.

GAAP net loss totaled 0.9 million dollars or 0.10 dollar per diluted share, compared to GAAP net income of 1.6 million dollars or 0.17 dollar per diluted share, in the prior-year period. For the nine-month period, GAAP net income totaled 3.2 million dollars or 0.37 dollar per diluted share. This compares to 7 million dollars or 0.79 dollar per diluted share, in the prior-year period.

Non-GAAP net income totaled 0.7 million dollars or 0.08 dollar per diluted share compared to 2 million dollars or 0.22 dollar per diluted share, in the prior-year period. For the nine-month period, non-GAAP net income totaled 5.6 million dollars or 0.64 dollar per diluted share against 7.6 million dollars or 0.85 dollar per diluted share, in the prior-year period.

Cherokee acquires Hi-Tec Sports International

Subsequent to quarter end, the company entered into a definitive agreement to acquire all issued and outstanding share capital of Hi-Tec Sports International Holdings, a global footwear company, for an aggregate cash purchase price of approximately 94 million dollars on a cash-free debt-free basis, based on normalised working capital.

Commenting on the acquisition, Stupp, said, “Following the close of the Hi-Tec transaction, Cherokee Global Brands will be more diversified across geographies, retailers, brands and product categories than ever before. We expect to achieve more balanced performance in fiscal 2018 across our business with strong contributions from both our organic and acquired growth initiatives. Including Hi-Tec, over the last five years we will have grown from approximately 20 countries to over 110 and from 5,000 doors to over 12,000 while also expanding our digital commerce presence.”

Cherokee issues guidance for FY17 and FY18

For the year ending January 28, 2017, Cherokee Global Brands expects revenues to be approximately 32 million dollars, adjusted EBITDA to be approximately 12.5 million dollars and adjusted EPS to be approximately 0.76 dollar.

For the fiscal 2018 year ending February 3, 2018, the company expects revenues to be in the range of 49 - 50 million dollars, adjusted EBITDA to be in the range of 19 - 20 million dollars. The company said, the fiscal 2018 guidance above assumes the consummation and includes the expected impact of the Hi-Tec acquisition. Cherokee expects Hi-Tec to contribute approximately 19 million dollars of licensing revenue and 7 million dollars in adjusted EBITDA during the first full fiscal year after the closing of the acquisition.

Picture:Tony Hawk

 

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