Cherokee Q3 revenues decline

Cherokee Global Brands said that for the third quarter of fiscal 2016 ended October 31, 2015, GAAP revenues were 8.1 million dollars, compared with 8.7 million dollars in the prior-year period. Overall, the revenue decreased of 0.6 million dollars.

"The agility of our business model and our global scale allow us to swiftly forge new platform partnerships around the world and successfully navigate the transitions that are inherent within our industry," said Henry Stupp, Chief Executive Officer, adding, "Over the long term, we believe transitioning our business away from legacy relationships will provide us the opportunity to establish new, more profitable partnerships that fully leverage the Cherokee Global Brands platform."

Third quarter financial performance

The company said that the decline in revenues was due to three reasons. First, zero revenues for Cherokee and Liz Lange-branded products in Canada due to Target's Canada bankruptcy and its subsequent exit from the Canadian market. This business has been replaced with a new, direct-to-retail license agreement with Sears Canada that includes Cherokee brand adult and children's apparel, footwear, accessories and home products and Liz Lange sportswear, maternity and plus-size clothing. Both Cherokee and Liz Lange will launch in Canada during the spring 2016 season.

Second, zero revenues from Tesco in the UK and Central Europe. The UK business has been replaced with a direct-to-retail license agreement with Argos that launched at the end of the second quarter of this year. Third, the transition of the Tony Hawk brand in Canada from a wholesale licensee to a direct-to-retail license agreement with Walmart. Again, sales and royalty revenue from Walmart will begin with the fall 2016 season. The company also experienced currency headwinds primarily from the Japanese Yen, South African Rand and Mexican Peso, which negatively affected revenues in the quarter by approximately 0.2 million dollars.

In total, the company said that these factors offset revenues by nearly 0.8 million dollars versus the prior year period. Partially offsetting this revenue decline were international revenue increases for the Cherokee brand in Asia.

Other Q3 highlights

Operating income totaled 2.5 million dollars or 31percent of GAAP revenues which is down from 3.8 million dollars, or 44 percent of GAAP revenues in the prior year period. For the first nine months of fiscal 2016, operating income as a percent of GAAP revenue were 43 percent as compared to 46 percent in the prior year period.

Net income totaled 1.5 million dollars, or 0.17 dollar per diluted share including costs associated with the acquisition of Flip Flop Shops and intellectual property protection costs, which reduced diluted earnings per share by 0.05 dollar. For the first nine months, net income totaled 7 million dollars, or 0.79 dollar per diluted share including acquisition costs and intellectual property protection costs, which reduced diluted earnings per share by 0.05 dollar.